Cash Flow — The Extra Ordinary Plight of Startups

Everyone that 90% of startups die in one way or the other down the line. A difficult bet everyone to jump on.

Reasons stated may sound like, Competition in the market, lack of growth there by not being funded, not having a proper business model, team issues and even people blame on government policies not supporting to the eco-system etc etc.

But an important reason every one seems to be misses out & not Talks about is, Cash Flow into account from customers. [There could be a broad things to include for cash flow, but here I am focusing on the payment collection from customers].

This is so core, to the most of the problems of startups that everybody faces it but very less people talk about it publicly because it might sound as their inability to handle the cash-flow or it is the echo system problem, which is not in their own control.

I will be touch base on it with, 3 crucial leanings to take away from my own experience. Intention is, you can dodge this bullet if possible.

In Around 2015, I left my high paying job at wells Fargo & moved into startup ventures. Got into the recruitment space as a sub vendor for sourcing niche technology candidates to work at client locations. Let me pause & mention here that, I didn’t had any early experience into this business, but had done my ground work & jumped in.

How this business works?

Once a consultant was placed at client, it takes few months to get the candidates first month invoice, till then we have to give the salary from our pocket. Difficult one, but comparing the margins we can make out, can be bearable. After that we can do the rotation and rise up.

As time passes by, things were getting difficult financially because,

• Amount was seldom released fully & on time.
• Any small issues in their tool or their employee mistake push the payments processing to next cycles.
• Sometimes, they expect discounts on the old & long pending payments to close off.

And yes, after 2 yrs of efforts, eventually I had to close the business majorly due to the cash flow & not having edge over the others vendors.

Now, What i have learnt from my life’s experiments.

Have more & more customers:

very important one & my biggest mistake. It is like, diversifying your risk factor during the investments. Keep adding new customers to diversify the crunch part. Was I not, aware of it? Why I missed? Wells, supporting few large clients with good margin is good, so we haven’t distributed our risk factors much.

Retain more & more Good customers:

Not every customer is same, you have to note that. There are good customers & bad customers in any business. How do we identify the good ones? Few characteristics…

• Who values your product/service
• Who feels like paying for your product/services as an investment to get the proper value for their business.
• Releases the payment on time [might not be every time, because practical issues will be there for everyone, but most of the times they are prompt]
• Gives some respect to you, when you are around

Treat these guys well & nurture them. For sure, they will vouch for value you are adding and makes a positive talk about your solutions.

There will be few clients who, wants to squeeze as much as possible from their vendors & solution providers etc. They feel, serving them is a must activity rather than a collaborative & win win situation.

My sincere suggestion is,

Observe the customers, identify these bad customers & stay away from them.

Because, there won’t be profitable business with them & they won’t refer new customers, even if you treat them like gods. Instead focus your strengths on good customers.

Don’t just count the number of customers, keep healthy customer growth as metric.

Keep a check on cash flow and start dealing with it early on:

Most of the times, when we start a business we are so much pre-occupied with other stuff that we ignore this critical metric. Keep a dedicated person or make sure every now & then, check how healthy are you financially.

Check how many times money & how much is coming into your account, rather than just on paper.

Bonus one:

what if my Every client is same?

There could be few businesses, where every major client is doing the same. They do the same with their every vendor or product teams. You have tried your best to tackle the situation, then what to do?

well now is the time to ask 2 questions to yourself,

• How much value are you actually adding to client in comparison with other vendors?

if your product/service is not able to buy you that extra edge, then is it really a competitive advantage, what you say you have? think once.

I had closed the business because, I was also in the same rat race as others and not adding much value.

• Think future & visualize do you want to do the same business in the same way with the same clients? 1 yr down the line or 2 yrs down the line, how situation is going to be improved?

Force yourself visualizing a realistic picture. Because as time passes by you will loose the enthusiasm for business. Of course, not for every business & every person but with majority this happens.

If you can’t make a difference here, then consider there is no profitable & scale-able business at all. Even if you are pushing yourself, you are procrastinating your death.

Hope this helps to at least few entrepreneurs, who miss out this.

Remember, we are always surrounded by noise, finding the right tune out of that makes us more happy & energetic & run for longer marathons.

Happy good customers to you.

Like & share if you see value in this. Else, no problem.

As Always, Appreciate your time. :)