Time and distance provides perspective. During the transition period to BCG, I have been writing down some of the lessons from my time at NCI, especially the last 2 years as we were sailing into the teeth of a storm (a metaphor that I will get back to shortly). In this post, I will focus on what I believe we did right, even though the outcome of NCI facing a restructuring was not what anyone wanted to see.
First, the metaphor. I have read a lot about daring people, fastidiously preparing for the fight of their life, knowing the likelihood of a grim outcome. Like, when I was a kid, the story about the army ants preparing to overrun the plantation and when I was a bit older climbers stranded in the wilderness and as an adult explorers facing racing to the South Pole with only what they had aboard their sleds as resources. In all of these accounts, the protagonists ignored the likely outcome and set about applying every tool/asset they had to try to solve the massive problem. At NCI, we saw this storm coming from miles away – knew it was massive and went about preparing our business as best we could to survive it. The company’s equity survived a long time, all things considered, and the core assets survived to “fight another day”.
Here is what I take away:
1 – Know your exposure points and measure them frequently. We knew that NCI was overly exposed to residential real estate from long before I joined the company. In 2005, we put together a study to see how correlated revenue was to home sale price, home sale volume, and average time on market. We knew that we were (a) highly uncorrelated to historical price fluctuations (but we had never seen a price move of the magnitude that the market ultimately experienced), (b) highly correlated to historical volume (our business was best when lots of houses were selling) and (c) we were confounded by turn (homes turning too fast meant lower ad spends, homes turning too slowly also meant lower ad spends – there was a sweet-spot of months on market). As the residential market fell off of its cliff(s), we were able to anticipate revenue losses and stay ahead of them with cost take-outs. We monitored the key macro and market level data to make these cut decisions and did not wait for losses to mount.
2 – Don’t deviate from the core framework of the business. A significant chunk of NCI is run by 300+ Independent Distributors who have the exclusive license to sell The Real Estate Book in their territory. We had a simple framework for decision making that we were able to maintain, even in the most challenging times. First, make sure our advertisers (customers) are making money, and then make sure that our Independent Distributors are making money (channel), and finally make sure that we are making money. While we shifted resources to markets with greater short term opportunity (Apartment Finder), we never reversed the order. We held the firm belief that the macro forces of immigration, population growth, household formation and the need for housing would ultimately drive the residential real estate market back to equilibrium (dependent on jobs growth), and that so long as we were able to keep that decision framework, NCI would be able to participate in the recovery. Note – there is nothing in the framework that dictates product formulation, pricing model, positioning, etc. NCI has been able to stay active and involved in most of its markets by maintaining this perspective.
3 – Use every tool at your disposal to optimize your cost structure. I recently sat in on a BCG update on “Hot Topics for the IT World”. While NCI was facing massive revenue declines, we were testing every method for driving costs down and were early adopters of many of the key trends identified in the BCG update:
- cloud computing,
- enterprise 2.0 tools,
- social media marketing,
- global sourcing,
- use of open source code,
- enterprise data mash-ups,
- data intensive analytics
Back to the metaphor. We tried these things to “tighten the rigging” on our ship. We had no misconception that more efficient innovation, lower cost development, lower cost infrastructure or even new product development and new revenue sources would be enough to counteract the magnitude of the residential real estate meltdown, but we did it anyway. We knew that if the storm continued to get worse, the debt would need to be restructured – but we did the right thing by using these leading edge capabilities to take cost out. No one “went below deck” to hide and ride things out.
4 – Continue open and frank communications. I don’t remember a moment when we sugarcoated a message. Dan continued to hold quarterly “State of the Business” updates, with good and bad news in black and white. Everything was out in the open. This permitted us to make very tough decisions about resource allocation without creating mass confusion for our employees.
5 – Constant culling of the portfolio. While there is some interconnectedness between markets and products within the NCI portfolio, we were constantly evaluating each one of these elements and made tough calls with regard to resource allocation as well as market closures. We did not have extra cash flow to support unprofitable markets that did not have a near term, realistic opportunity to reverse the trend. Again to the metaphor, we had finite resources and needed to constantly be performing triage. Giving too much to save a troubled market would leave too little to support those with growth prospects. With the “never say die” attitude that pervades NCI, this proved to be one of the toughest problems to solve.
