Leaders should accept that work will never go back to how it was and flexible work is here to stay…
If you’re like most entrepreneurs assessing the current economic landscape, you are sheltering in place and have several competing priorities. While all these issues are important, your highest priority is having a granular, specific, up-to-date understanding of your cash position. Not growth, not adding new customers, not profit… cash. Profit does not equal cash because you can’t spend profits. It’s possible to have $200k of profits and no cash (maybe a customer hasn’t paid yet), or $200k of cash and no profits (perhaps you’ve not paid a bill yet, or you’ve just borrowed money). Extreme, tactical management of your cash flow is the only way you’ll stabilize and save your business.
I’ve already seen a dramatic shift in the investment community moving from an obsession with income statements, revenue, scalability, and profits to an emphasis on cash, cash reserves, cash flow, debt, debt-to-equity ratios, and free cash flow. They are mainly focused on how your management team effectively preserves dry powder.
If you are already suffering, my intuition is that you already had a weak balance sheet and cash flow before COVID-19 became a pandemic. Even if you’re not suffering, you need to assume that things will be worse than you think. Even if the quarantines stopped today, the impact on your customers as they “pick up the pieces” and resume normal operations might last six months. Your 2020 budget is irrelevant, and your strategic plans won’t get you through this economic crisis because you have no control of our government’s response, the length of quarantines, or Wall Street’s reaction to COVID-19.
So let’s focus tactically on the problems you can solve that improve the odds you will live to fight another day. It starts with creating a rolling 13-Week Cash Forecast consisting of:
- Your beginning cash balance
- Projected sources of incoming cash (which would include cash sales; collections on receivables; the cash proceeds on the sale of property, plant, or equipment; money raised from banks or lenders, etc.). This would include any cash deposited into your bank account.
- Projected uses, payments, and expenditures of cash (which would include all bills paid, purchases of inventory, deposits paid, loans repaid, or accounts payable paid, etc.). This would consist of any cash spent or disbursed out of your bank account.
- Your ending cash balance
You will be maintaining this as a living forecast (each week roll all your weeks forward one week. The old week two will become the new week one. The old week three will become the new week two and so forth). Give yourself some extra space to added items as they come up. Do not show just one line for “accounts receivable.” Instead, list the customers who owe you money and estimate the amount you think they will pay in the appropriate week’s column. Do the same for every payable. You need the detail to determine who you’ll pay, who you’ll defer, and what is renegotiated.
Now you have a planning tool to get to cash neutral quickly. Now is the hardest but necessary work if you want to survive. You need to be aggressive, targeting up to 50% of your expenses. Ready?
- Aggressively go after account receivables. Give discounts for early payments.
- Be ruthless regarding expansion, growth, or Cap X plans/expenditures that can be delayed
- Only focus on marketing that measurably produces the highest ROI. Defer everything else.
- Do you have any unused assets that can be converted to cash?
- Push out payables as far as possible without incurring penalties or fees. Try to renegotiate terms with every vendor proactively. Trust me; they’re expecting these calls.
- Wages need to get aligned with current revenue. Lower the management team’s salaries immediately. It’s difficult to justify the next steps if you’re not willing to be the first one impacted. We cut everyone by 50%.
- Evaluate staff and cut deep (much deeper than you are comfortable) but only cut once. Nothing is worse for morale than repetitive layoffs.
- Consider furloughs when appropriate—research applicable laws, especially when furloughing salaried employees.
- Convert your fixed cost to variable cost whenever possible. Are there employees that can be converted from salary to hourly? Can you expand/contract the hours they work as needed? Are there positions better served with contract roles where you can efficiently manage capacity?
If you can’t create a plan that sees you through the next 3-4 months, then you will need to “sharpen your pencil” and make further adjustments. The hardest expense to deal with is payroll, which, if you are like most, is your largest expense. The temptation is to envision what you will need when the crisis over and the recovery begins. The other impulse is to fund everyone as long as possible or to enact an across the board 25% reduction in wages. This isn’t the best approach since you have no idea how long the crisis will last. A rule of thumb I use:
- Protect the ones that can provide the best leverage now and when things turn around, even if you need to redeploy them temporarily. Reduce the salaries of the middle tier and eliminate the bottom.
Remember, once the money is spent, it is gone forever. This too shall pass. Use extreme tactical management of your cash to get to the other side.
Stay healthy. Stay hopeful.
I frequently work with start-ups. Sometimes as an advisor. Sometimes a supplier. Often, I’m asked to invest or help raise money. As I review pitch decks, I see the same theme repeatedly. Entrepreneurs, in love with their “baby,” focus too much on their product and how it’s going to “Uberfy” an industry. Unfortunately, they missed the critical elements investors target (in order):
- They haven’t found a product-market fit.
- They haven’t formed a team with proven success in that industry
- They don’t have a command of the competitive matrix or their intersection
- They don’t have command of their financials and, more critical, ratios.
Traction trumps team… Team trumps product.
One of the only television shows I watch is Billions, starring Damian Lewis as Bobby Axelrod, on Showtime. In one episode, Axe’s wife, trying to raise a round of funding for her new venture, has negative experiences with potential investors. Axe adroitly explains why she’s not ready:
“What is it you do that you’re the best in the world at? You offer a service you didn’t invent, a formula you didn’t invent, a delivery method you didn’t invent. Nothing about what you do is patentable or a unique user experience. You haven’t identified an isolated market segment, haven’t truly branded your concept. You need me to go on?
So why would an investment bank put serious money into it? I all but told you that ahead of time, but you wouldn’t listen. Now you’ve heard it, but it’s too late. You. Weren’t. Ready.“
Today I’d like to teach you about the three most important start up marketing tools you need to get and keep new customers.
- In person: It’s essential you meet with customers/clients in person whenever possible. This shows you respect them and take the time to work with your clients to give personal attention to each of them.
- Follow up letter: Always take a moment to send a follow up letter about what you talked about, new agreements or partnerships made and to thank them for taking the time to meet with you. Likewise, you should always send thank you letters or small gifts to partners you find success with.
- Phone call: Use a telephone call to follow up with them to talk again about the matters you talked about in your meeting and offer any assistance you can to help their business run smoothly and more successfully.
None of these will work if you don’t have a quality product/service to back you up!
Here are the key steps for putting together your start-up marketing tools:
- Research potential customers, buyers, competitors and their preferred methods of distribution.
- Talk to potential customers. Take a hard look at your product from a customer’s perspective and see what it needs to be successful.
- Follow up with your 3-step process from above.
- Develop systems for contact follow through, quality control standards and customer service.
- Develop post-sale follow up system to keep lines of communication open is customers and build on your current relationship which increases future purchases.
“Marketing and innovation produce results; all the rest are costs” Peter Drucker, management consultant
Here’s another one I love from an icon:
“If there is any one secret of success, it lies in the ability to get the other person’s point of view and see things from that person’s angle as well as from your own.” Henry Ford, Founder of Ford Motor Company
This lesson has offered you the tools to put together a start-up marketing plan that can be used over and over again to help your customer base and business grow in a manageable way.
- What do people really want to buy from me?
- What related products are they already buying?
- LV is the life time value of a customer
- P is the average profit margin from each sale
- F is the number of times a customer buys each year
- N is the number of years customers stay with you
- MC is the marketing cost per customer (total costs/number of customers)
- Find companies who already have the customer base you are looking for.
- Negotiate an incentive for them to share that customer base with you.
- Focus your marketing resources to this group of predisposed customers.
Educate them about what, you may be thinking. Well, consider this, many businesses focus solely on attracting new customers, but you NEED to spend a good chunk of your time retaining current and former customers. These are people you already know to be a good sales potential…they’ve already bought from you!
Take the time to market and sell new products to your old customers and less time trying to sell old products to new customers and you will see a drastic change in your sales, customer quality and branding position.
Here are a couple of key elements to use to retain your current customers:
- Stay in contact: This means by phone, email, e-newsletter, in person-by pigeon if you have too!
- Post-Purchase Assurance: This means you need to follow up with customers. Your customers need to feel like they are being supported for their purchase and with the item they purchased. How many times have you purchased a product, then felt completely abandoned? Something as simple as a Thank You note with your contact or customer service information can go along way in retaining a great customer.
- Deals & Guarantees: Always offer your current customers the best deals and guarantees you have. Show them you appreciate their business or even come up with a club specifically to reward loyal customers. You can also do this with a preferred pricing option.
- Integrity: Using good business practices and simply upholding integrity, dignity and honesty go along way with customers. Let’s face it, there’s a lot of swindling and crap out there and the safer and more confident you make your customers feel, the more they will trust you and that makes for an amazingly supportive and loyal customer.
There are three cornerstone ideas to a successful business:
- Quality product/service
- Offering useful products/services that solve a problem for or enhance the life of a customer
- Offer subjects your customers find interesting
Use this approach of educating your customers and offering them real information and insight and you will be rewarded with loyalty and success.
Stop wasting all your time on new prospects while your current customers fall by the wayside!
As Jay Abraham says, “Your best prospects are your existing customers. If you’ve been putting all your marketing efforts into acquiring new customers, stop and diverts some of your resources into reselling, upselling, cross-selling to those same customers. In every ways possible – through package inserts, regular mailings, special offers – stay in touch with those customers and get them used to buying from you.”
So, there it is! Remember, we can help you put together the resources and tools to do exactly that. We can help you educate your customers and you can watch the benefits pay offer many-fold.
Today we’ll talk about shameless self-promotion. That’s right, I said it! Shameless! After all, we are learning from Paris Hilton here.
It’s all about self-promotion! Self-promotion comes in many forms and you can use different tactics to get your name out there. Look at politicians! Talk about self-promotion and in some not so discreet ways, at that. But, seriously, consider some of the major superstars we all know. Madonna, Donald Trump, Howard Stern and Bill Clinton, just to name a few.
We all self promote. Did you raise your hand in class to show the teacher you knew the answer? Of course! That’s self-promotion. This is the kind of self-promotion we are talking about. With dignity, class and the knowledge to back it up. If you self-promote only to prove you don’t really know what you’re talking about, you’re going to lose business.
Natural self-promoters are the former and I want to tell you about the three major traits they have and use to build themselves and their businesses.
- The first is position. You need to position yourself around people who can make a difference in your life. You need to do this frequently. You need to wake up every morning and ask yourself “Who can I meet today who will make a difference in my success?” In fact, go a step further, write it in big, bold letters and tape it on your bathroom mirror.
Who can help me meet my goals?
Is it a prospective customer/client? A colleague with contacts? An association with key members who may become prospects?
Don’t settle into interacting with the people who are the easiest to access. You need to reach outside your comfort zone and there you will find a wealth of new connections that will bring you great success.
- Now, let’s talk about Style. No, this doesn’t mean you need an Armani suit to bring in more business (though, let’s be honest-it wouldn’t hurt) What this really means is how are you different from your competitors and others in your industry. What makes you memorable with customers?
If you are meeting a lot of people and they don’t remember you once you leave the room, you have a serious problem! This means you have an opportunity to present yourself in a more memorable way.
There are lots of little subtle changes you can make. Reassess your:
- Business cards
- Company message
- Your picture
- Your wording
Maybe even, your hairstyle (of course, now we’re back to the expensive suit, but it really works!)
You get the idea. There are lots of little ways you can work on making your image and business more successful. Also, consider how you sound on the phone and how you great people at meetings or other events. Think about your 30-sec elevator speech.
- The third trait of natural promoters is repetition. You can’t say it once and leave it at that. Successful self-promoters say it as many times as they need until they get a response. Would you remember a commercial for Coca-Cola if you only saw it once, no! You see it over and over and eventually you head out to the store.
You, also, have to make multiple impressions on those you are networking with in order to build brand awareness. Repetition is in direct connection with positioning. Once you find people to network with, reach out and find hundreds more who can help in your success as well.