Even before the launch, and even before the funding, many start-ups suffer from infighting over who gets what and under what circumstances – as if the launch, proof of concept, and the achievement of positive cash flow are all a given. They’re not! In fact, many times the divvy is a function of the road ahead, which is an unknown, for the most part, for months!
We advise our clients not to argue over pie in the sky until there are peas on the plate! Just achieving positive cash flow is such a challenge, all the proponents should be focusing on that first.
We have seen too many businesses fail to achieve positive cash flow, but boy did they have infrastructure. No positive cash flow but big overhead – staff, offices, an HR department, lots of people with lots of titles. Why? Because, they say, “That’s just how it’s done.” It isn’t, really! The way it’s “done” is to achieve positive cash flow first and then earn all the other corporate luxuries. You really can’t afford to load yourself up with tons of bricks, mortar, structure, administration, employees and employee benefits until your company is solvent.
The big advantage of focusing on cash flow as your first and only goal is that you will have a better chance of being around long enough to have the luxury of arguing about pie in the sky. By focusing on achieving positive cash flow in the beginning, everyone’s mindshare will be free of office politics, communication issues, and turf wars. Also, and probably most importantly, you won’t be using up precious startup capital on premature overhead.
We like to say, “The day after launch, it’s the cash flow report and not the business plan that runs the business.” Stick to the inglorious task of making sales happen – all of you. Everyone in the company must focus on sales, either making them or supporting them.
We actually blame this “pie in the sky” phenomenon on the funders as much as the proponents. The proponents may have gotten the idea that other things were more important than achieving cash flow from the movies, the entrepreneurial success stories, and the press.
That’s dangerous enough, but now add to that misconception VCs who should know better. Many seem to be overly impressed with the business plan, the structure, and administrative staff. Maybe that is why so many VCs try to hedge their bet by investing in 14 or more businesses hoping one will ROI.
We think the ROI would be much better if everyone focused on sales. Then the VCs wouldn’t have to bet on so many startups hoping just one would succeed. More would!
Oh, and as far as the prelaunch, pie-in-the-sky infighting is concerned, a focus on sales would provide the sobering realization that the divvy may have to be based on commissions, and other costs of sales like programming, representation, and allowances just to get off the ground.
The idea that, “Oh well, if we don’t achieve positive cash flow, we’ll just ask for more money” is not only counterproductive, it encourages a negative and unproductive mindset. This kind of thinking diminishes the value of quick, sustained, and growing sales. It also gives a false sense of security in the short term, and winds up costing more of the proponents equity in the long run.
So let’s get some peas on the plate before we talk about divvying up the pie in the sky. Bon appetite!
Who We Are
Michael Houlihan and Bonnie Harvey co-authored the New York Times bestselling business book, The Barefoot Spirit: How Hardship, Hustle, and Heart Built America’s #1 Wine Brand. The book has been selected as recommended reading in the CEO Library for CEO Forum, the C-Suite Book Club, and numerous university classes on business and entrepreneurship. It chronicles their humble beginnings from the laundry room of a rented Sonoma County farmhouse to the board room of E&J Gallo, who ultimately acquired their brand and engaged them as brand consultants. Barefoot is now the world’s largest wine brand.
Beginning with virtually no money and no wine industry experience, they employed innovative ideas to overcome obstacles, create new markets and forge strategic alliances. They pioneered Worthy Cause Marketing and performance-based compensation. They built an internationally bestselling brand and received their industry’s “Hot Brand” award for several consecutive years.
They offer their Guiding Principles for Success (GPS) to help entrepreneurs become successful. Their book, The Entrepreneurial Culture: 23 Ways To Engage and Empower Your People, helps corporations maximize the value of their human resources.
Currently they travel the world leading workshops, trainings, & keynoting at business schools, corporations, conferences. They are regular media guests and contributors to international publications and professional journals. They are C-Suite Network Advisors & Contributing Editors. Visit their popular brand building site at www.consumerbrandbuilders.com.
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