Shaking it up

AT NOMINET, where we manage the registry of internet domains ending in .uk, we will witness arguably the biggest shake-up our industry has ever seen when a raft of new web domains are launched from 2013. Recent changes will see the number of internet top-level domain names increase dramatically. Indeed, commentators are predicting anywhere between 500 and 2,000 new generic top-level domain (gTLD) applications will be coming this way. Under the new rules, organisations will be able to apply for domains that end in any set of characters longer than two letters – opening up the possibility of community or industry domains such as .bank, .hotel or .london, or domains dedicated to specific brands, such as .google, .nike or .bbc.

These changes will see our core business on the cusp of a new class of competition and diversity. As such, we have had to prepare for a radical change to our core market.

The steps we have put in place are applicable for any business facing a significant shake-up in its markets. However, prior to devising a financial strategy and building the models, it is imperative to assess the strength of the business’ financial footing. Liquidity is an essential ingredient when you are considering making significant changes to your core model.

You have to steer the business through an investment modelling exercise to assess where to allocate the available funds, and anticipate how the funds will support the evolution of the business. Obtain as much market intelligence as possible. Investments in research will help you determine likely price points, possible product demand, substitutes and the maturity of market – all vital insights for the creation of your new business model.

Working closely with the board is essential. After all, numbers in a spreadsheet may reflect significant change to the business as it has been known and, as such, may be less palatable in practice than they are in theory.

Another key consideration will be the distribution channel for your new or evolved product. In a crowded market such as the future domain space, it is likely that the “retailers” will be in a powerful position and shelf space may come at a premium. Having motivated, engaged distribution partners with a focus on the right market segments will be vital in a high-volume/low-cost sales model such as domain names. Through this process, it is vital to work closely with the marketing, sales and/or channel teams in your business.

The changes to your business could depend on any number of factors, including the availability of free cash, working capital requirements, capital investment and even acquisitions or mergers. The brief is to evaluate all possible routes to support the business entering into new markets, and look for the ideal one for your business.

The size of investment and duration of payback are critical factors that must be assessed in evaluating these sorts of business changes. The cash profile needs to be understood, as it will give the board a sense of the level of commitment of funds and deliver the insight needed to manage that financial risk profile. However, the cash profile is also an indicator of other things, including the strain that the new projects will place on the organisation and its people. That strain needs to be managed, working with the organisational culture and capacity to stretch.

When your industry is seeing dramatic change, the FD’s skill as a financial analyst will not be the only thing tested. Collaboration throughout the business, careful research and engagement with the board will be essential to ensuring you come through stronger and set to capitalise on the opportunity. ?

Glenn Hayward is director of finance at Nominet