Archive for December, 2008

Are You Scared Yet?
December 4, 2008

If you have started a business or are thinking about it, you will become intimately familiar with the emotion of “fear.”  If your business is your new wife/husband, then its a given that fear will be your mistress.  However, there are a number of things good about the pit-of-your-stomach terror that comes from your endeavor and you can (and should) learn to manage that fear to your advantage.

 

Right now, the economy is a royal mess and everyone from big businesses to individual families are rightfuly terrified about what is going on.  Would you believe that this climate actually is a benefit to you as you start your business?  Right now, every company and consumer on earth is trying to find ways to manage their cash-flow and cost structure.  In other words, companies are reevaluating where they spend their money and what they can do to reduce – drastically – those costs.  This in itself is an opportunity for your business.   As we’ve already covered, you are trying to sell a service/product that adds value for the user.  From a less-expensive widget to enhanced efficiency, your product/service is no doubt geared towards making your customer’s balance sheet more appealing.  In times of great prosperity, your potential customer isn’t likely to change course from what’s working.  In shitty times like these, you’ll find customers very receptive to any and all options that save costs some how.  While you will still have to work hard to earn every customer and every dollar, I assure you that the current climate and the fear it brings will afford you a better opportunity to sell then when things are good.

Similarly, the current economic crisis means companies are shedding workers very quickly.  The amount of talent available and desperate for a job is unprecedented.  In the event your company is at a point where you can or need to increase head count, you have a once-in-a-lifetime pool of candidates to choose from.  And as a startup capable of offering long-term significant financial gain (stock options, profit sharing), you will be able to offer some things that bigger, slower companies won’t.  A 20 year vet of your sector who just got canned from his $150k a year job may come work for you at half that rate if you add in a spicey stock option package as well.  6 months ago, you would never get their attention; now, you’ll likely have multiple candidates to choose from.

One of your biggest sources of fear will no doubt be money, specifically cash-flow.  Everyone’s heard the saying, “It takes money to make money!” but you won’t ever understand that fully until you are running a business.  You absolutely, positively have to have access to cash to keep the wheels turning.  The vast majority of businesses experience some lag between buying products and collecting revenue for that product.  (Large companies can be the exception by demanding extended terms, but that isn’t you.)  Even if your lag is only a day or two (say, the time it takes for a credit card payment received online to hit your account) you still will be “out” some money while you wait to collect your funds.  And if you’re in the B2B sector, there is a fair chance you’re offering Net terms to your customer meaning you are floating the money for longer then a few days.  

And because of the fear in the markets, there probably isn’t a bank that’s going to offer a new company like yours an ounce of credit.  Ideally, you’d have a low interest line of credit to absorb the float and provide you access to cash to grow your business.  More realistically, you’re going to have to self-fund through personal savings, credit cards, or Aunt Edna’s nest egg til you start selling something.  However, invoiced sales can be powerful instruments in even the worst economy.  Some companies, called “Factoring Companies,” will buy your invoices (and essentially your A/P department and it’s accompanying headaches) for a pretty small sum.  Many of these companies will wire you 75%-80% of the invoice total within 24 hours of you providing them a copy of the invoice and proof of product delivery to your customer.  They’ll then invoice the customer (on your letterhead) and handle all A/R and collections on that invoice.  Once it’s collected, they’ll wire you the remaining balance less a small fee, usually between 2% and 4% per 30 days the invoice has been out.  If your margins on the product are greater then the 20-25% you will have to wait on, “factoring” is almost a no-brainer considering the small fee is actually paying to out-source your A/R.   For example, if you buy a product for .75 and sell it for $1 and “factor” the invoice at 75%, you’ll collect .75 in a day or two (covering the cost of the product), avoid having to call your customer when their payment is late, and collect roughly .22 once the payment has been made.  You make .97 instead of $1 but haven’t used an ounce of your own precious cash to keep your business rolling.   2-4% is a SMALL price to pay to use someone else’s cash to grow your business.

Fear is also a tremendous motivator.  But rather then scare yourself to death over whether or not you’ll have enough dough to buy groceries next week, turn that fear on it’s head.  You got in to this mess because you believed in your idea but more importantly believed in yourself and your team.  Has that changed?  If not, you need to be fired up to get out there and sell your product instead of scared of possible failure.  Your attitude is contagious; if potential customers sense you are desperate to get a sale because your future depends on it, they’ll also sense a lack of confidence and find it hard to trust you.  But if you carry yourself with an attitude of great confidence in what you are selling, they’ll pick up on that as well.  Make enough contact with enough potential customers in a confident, professional way and your sales problem will solve itself.

Someone once said, “Courage is not the absence of fear but rather the mastery of it.”  Truer words have never been spoken.