Debt-Fueled Growth Faces Uncertain Future Amid Coronavirus Impact
One of Montreal’s more appealing coffee bars can be found at the recently renovated headquarters of Groupe GSoft Inc., a business software maker. The space includes a basketball court, a skateboard ramp, and numerous comfortable chairs tucked away in quieter corners. The venue felt bright and bustling during a December visit, with its expansion nearing completion, a testament to the 14-year-old company’s status as a largely unrecognized leader in the local technology sector.
The company’s chief executive, Simon De Baene, was reflecting on the significant changes in his life, realizing he was no longer the kid running a startup from his apartment in Saint-Lazare, Quebec, but rather the head of a company employing approximately 300 people, with plans for continued growth. As De Baene admitted, “It keeps me awake at night.” He acknowledged this as the biggest challenge of his career.
The GSoft headquarters, now dark since March 16, 2020, reflects the broader impact of the COVID-19 pandemic. De Baene’s decision to close the office slightly ahead of the Quebec government’s mandatory order, aimed at slowing the virus’s spread, demonstrated a responsible and proactive approach. Quebec recorded more than 5,500 cases of COVID-19 as of April 2nd, making it the province with the highest infection count.
Like many other executives, De Baene’s days are now largely filled with multiple video conferences, coordinating a workforce spread across the city rather than congregated in-house, with a barista on staff. However, this doesn’t seem to have daunted him as he discussed the future over a telephone call on March 31st. A key focus for De Baene is now his newborn child, and he has discovered that remote work can actually boost productivity.
The company’s approach, often described as “Kraft Dinner,” is particularly noteworthy. In the early days, De Baene and his partners focused on covering basic expenses—food and rent—before reinvesting any profits. This cautious strategy is designed to ensure sustained growth, avoiding the pitfalls of rapid expansion fueled by excessive borrowing. The company isn’t capitalizing on the renovation at the headquarters moment, but at least De Baene isn’t worried about securing the funds to pay invoices. “We have a lot of liquidity in the company,” he stated this week. “We weren’t in panic mode when everything changed in the last two or three weeks and we’re able to analyze a little bit more and understand that we could go through the crisis and get out of it stronger.”
The company’s approach stands in contrast to the prevailing business model of companies born into the “move-fast-and-break-things” era. While rapid sales and market domination were previously considered essential, the current economic landscape, shaped by a potential “L-shaped recovery,” is forcing a shift in thinking. Associate professor of international business at Western University’s Ivey Business School, Tony Frost, noted that “I think there is going to be a shakeout.”
The scale of ambition seen in companies like Element AI, which garnered $100 million in 2017 before developing a sustainable business plan, and Lightspeed POS Inc., which raised $179 million in an initial public offering last year, now appear less viable. Investors are increasingly wary of debt-fueled growth and are favoring more stable, dividend-paying companies such as BCE Inc. The market downturn has created opportunities to acquire profitable investments at discounted prices.
Ultimately, the “Kraft Dinner” approach is experiencing a resurgence. “The sheer audacity of some of these businesses that were started surely looks way less viable in a world where you are worried about an L-shaped recovery, or a slow escalator back up,” said Frost. “I think there is going to be a shakeout.” As De Baene and his team navigate the challenges of the crisis, they are prioritizing the long-term stability and growth of GSoft, recognizing the need to remain resilient and adaptable in a rapidly changing environment. They acknowledge that many businesses may fail, but they are determined to emerge stronger, contributing to the recovery of Quebec and Canada.
