What do Tesla, An Electric Pioneer, and Superdry, A Retailer, Have In Common?

Posted on 20th February 2017 in The Forecast

Written by Amy Harris

Business isn’t rocket-science and over complicating it won’t yield better or more sophisticated results. With that in mind, Tesla and Superdry have a lot in common. They both create and deliver something of value, that people want, at a price they are willing to pay. There are enough Teslas’ on our roads, and SuperDry hoodies being walked around the streets of Melbourne, New York and London, to know that these are serious international brands. In this blog, we look past their products, customers and suppliers to focus on one thing: cash flow. If you don’t know why they are famous for forecasting, read on…

Cash flow is the lifeblood of any business, large or small, and these two stories prove that a cash flow crisis can happen to anyone. Like so many businesses before them, Tesla and Superdry have both had to face their “worst case scenario” and one did so rather more publicly than the other…

Tesla

Russ Fujioka, Founder of F4 Ventures, shared on Inc., that Tesla, was a heart-pounding 72-hours from bankruptcy back in December 2008. Although they had been trying to raise capital since the summer of that year, the financial markets had crashed and investment wasn’t forthcoming. “Just when we needed money, we weren’t able to raise any”, Tesla Founder Elon Musk said. “Trying to raise funding for a startup electric car company in the face of General Motors going bankrupt was a very challenging endeavour.”

Musk’s next move was one that a lot of Founders will be able to relate to, rolling the dice and going all in, with his own capital. “Because I was willing to invest everything that I had, the other investors in the company were willing to put up the other half of the money that was needed to keep Tesla alive,” he said.
It’s hard to imagine the world without Tesla today and this proves how vital liquidity is for innovation to flourish.

Lessons learned?

  • Entrepreneurs who believe in a cause have to take bold risks to achieve their goals, often involving their family and friends finances. It is critical to obsessively scenario plan to make sure you limit your risk and you can live with your the ‘Worst Case Scenario’ becoming a reality.
  • Informed decisions can only be made on solid data and assumptions so it is important that your financial data is clean and presented effectively for you and investors. If they can’t make sense of what you’re presenting, this might stall the cash injection, don’t fall at the final hurdle
  • As Fujioka advises, if you are funding through Venture Capital, raise capital when you don’t need it. “You’ll be able to negotiate better terms, attract smarter money and not appear desperate because you’re hours from shutting.”

Superdry

Can you imagine losing more than a third of your business value in minutes…? I know. It’s a heart-stopping thought. Yet, in 2012, this was a reality for the SuperGroup and the crisis was entirely down to a Forecasting error. As reported in the Financial Times, it first predicted that Pre-Tax Profit would be £50m but, due to the arithmetic error, it updated that projection to a much lower than anticipated £43m. The error itself was, perhaps, embarrassingly straightforward, a negative figure had accidentally been treated as a positive during the cash flow forecasting process.

Lessons Learned?

  • Don’t rely on spreadsheets. The SuperGroup had enough cash reserves to ride the storm but, if you are a smaller business, it could cost you that business, not just your credibility
  • Forecasting isn’t a process you should do alone so make sure you build multiple “sanity checks” into your process. If they can easily access, visualise and collaborate the numbers, errors will be reduced. For extra precaution, set alerts based on what is and isn’t acceptable performance so the software can alert you to errors also
  • Not convinced the cloud beats your spreadsheets? Then hire a good PR agency! This error was reported widely in the media including The Telegraph, The Financial Times, CityAM, AccountingWEB

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