5 Business Lessons All Promising Entrepreneurs Should KnowTuesday August 16th, 2016
Here are some bits of advice I would give my 22 year old entrepreneur self.
Here are five of the most important business lessons I’ve learned in my first 12 years in business. Don’t expect an unearthing of secrets- just an emphasis on the most important aspects of business that took me far too long to fully grasp. I had to learn most of these lessons the hard way (so hopefully you won’t have to).
Don’t just pay attention to cash flow– understand how it works.
Your goal here is to understand how daily decisions impact your cash position three months later. Once you figure out what levers cause cash flow peaks and valleys, you’ll be in a better position to control outcomes. You’ll know how your business flows, and you’ll manage your cash well with a preventative approach instead of a reactive one. Then, with cash on hand, you’ll have time and leverage. You’re never desperate or needy or paying someone else to borrow. If you have cash, you have options, and you don’t have to bend for anyone. Cash flow is freedom, and it’s worth working for.
If you don’t have cash, you don’t have time to wait. You have to send desperate emails putting pressure on your customers to pay their bills. You have to hold invoices for months while your vendors and partners wait to get paid. When you don’t have cash, the stress eats you up.
Focus on selling before you optimize operations.
All entrepreneurs and startup teams should focus on achieving consistent sales before spending too much time perfecting or optimizing their process for product development or service delivery. To this day, my partners and I debate what our biggest issues are and what to tackle in what order. More efficiency in processes, improving overall utilization and increasing profitability are always high on the list and are clearly all very important. However, without consistent sales, we spin our wheels and cannot fully put these other improvements into action. Get your business development strategy in place, and once the new business is flowing, focus your efforts on optimizing processes.
Banks will lend money when you don’t need it. Good luck when you do.
There have been times when we’ve needed money for growth or to get through a tough cash flow period. In these situations, we’ve been rejected many times by banks for very small bridge loans and/or modest lines of credit, even when we show strong year-over-year revenue growth.
Despite this, banks have no problem offering us money when we don’t need it. Pretty backwards, if you ask me. The alternatives are angel or VC money, if you’re attractive enough to find a suitor, but you’ll lose some control of your company if you go this route.
If you are able, be disciplined with your cash and fund your own growth. There’s no healthier way to manage your business and control your destiny.
To all early entrepreneurs – be disciplined with your cash and fund your own growth.
Revenue and profit are not the same.
It’s easy to look at top-line revenue and get an inflated sense of your financial position and a false sense of optimism. We’ve made this mistake many times, and it always results in overspending and under-budgeting in the months that follow. We end up in a cash flow draught, and we look back and scratch our heads. How does this happen? There were times in the past when we failed to estimate and track our our accounts payable (vendor payments, software licensing fees, stock photography costs, etc) and our sales commissions against the gross revenue. What we should have realized is that the big numbers get smaller quickly when we look at the costs of managing and completing the projects.
I suggest tracking more than your deal value. Keep a running estimate of gross profit on all closed deals so you know how much money is yours and how much of your income will need to be paid out during the contract. This could change halfway through a project, so make sure you update your numbers!
Invest in your team and mission.
Build a strong team and put your trust in them. Give them the autonomy to succeed or fail, but most importantly, to learn and improve without you. Always reward loyalty and dedication.
Also, don’t wait too long to agree on a mission and a set of core values. I regret waiting 11 years to finally decide to develop a formal mission and values for Brolik. A clear mission and values will keep your team centered when you hit rocky times and can provide guidance when making major decisions.
If you have a team that believes in something and shares a value system, you’re building a brand. Even if the future of your business is unknown, you’re creating a strong foundation to grow with.
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