Embracing and Accepting Change May Make or Break Your Business

I drive a 2007 Subaru Outback.  Currently, the car is in the shop for some repairs and routine maintenance.  While in the shop, the dealer provided me with a brand new loaner Subaru Forester.  While using the cruise control, I noticed some very interesting additions to the features it provides.  It detected when I changed lanes.  And, the cruise control adjusted the speed of the car automatically according to cars in front of me.  As advertised, it can even stop the car before a collision happens.

Subaru Eyesight Technology

I have been reading for a few years that kids born today may not drive ever.  Sometimes these predictions seem like science fiction.  We are so focused on preserving the present that we often ignore potential future change.  Look at what happened to companies like Kodak, who held on to the idea that people would always print photos.  Cable companies are another good example.  What happens to cable when consumers get all their content online?  It is highly possible that the only thing keeping cable companies alive is HBO and ESPN.  Without cable, what happens to flat screen TVs?  Other industries, like taxies, are dealing with major competitors like Uber, which have huge competitive advantages by having no infrastructure.  All too often we put our head in the sand and say that these changes are not going to happen that fast.

As for the car industry, they are a perfect example of an industry that is unwilling to accept the future.  One article I read talked about the next consumer electronic being the car.  You may ask how a car can become a consumer electronic.  To answer the question, think about what will you be doing in your car when you are no longer driving it?  You will be watching movies or TV shows, checking Facebook, shopping, talking to friends, among other things.  It is highly unlikely that you will just sit there and enjoy the view.

Google Driverless Car

Over the past several years, Apple and Google have been investing heavily in autonomous car technologies.  Google has driven over 1 million miles with its autonomous cars without any major crashes.  What happens when Apple or Google start selling cars?  You may think that legislation will stop this from happening, but driving autonomously is legal right now as long as someone is sitting in the driver’s seat.  That is how Google has driven 1 million miles with their autonomous cars.

Now, let’s shift back to my loaner car.  The system that enables its fancy cruise control is called EyeSight Driver Assist Technology.  It turns out that it was introduced in Subaru’s 2015 models.  Now, it may seem somewhat simple for this system to adjust the speed of the car, but the extent to which this system performed was amazing to me.  I drove several dozens of miles, including traversing the downtown connector in Atlanta traffic, with the cruise control set at 78 miles an hour without touching the gas pedal or the brake.  The car would slow down and almost stop for traffic, if necessary, then resume speed when cars had cleared the lane.  During one trip, I drove from I-20 W onto I-75 / I-85 N, then exited at Northside Drive without touching the break.  I was even able to get off at the exit without touching the break.  At the very end of the exit ramp, I reengaged the car.

Driving with Cruise Control: From I-20W to Northside Drive in Atlanta

What is simply amazing about this feature is that it is available on a Subaru Forester for just under $30,000.  Now, changing lanes and managing stop lights and stop signs may seem like a far stretch from adjusting the speed of a car when cars are in front of you.  But, is it really that far of a leap?  If Subaru can create a feature like this for under $30K in a fully loaded automobile, are we really that far off from autonomous cars?

Whether it is autonomous cars or the end of cable, we often avoid accepting change as reality.  As entrepreneurs, this could make or break our businesses.  Although, it is just as bad as an entrepreneur to count on changes you cannot control before they happen, it very important to accept that change does happen.  Some industries may move slower than others, but we are in a time of exponential change.  Keeping aware of these changes and adjusting your future business model accordingly may make or break your business.

What changes are coming in the future of your business?  Are you prepared to address them if they happen? 

Bad Customer Management – The Best Way to Grow Your Competition

As I stepped on my Delta airline flight today, I felt aware and alert.  Through 20 years of flying the airline, I have learned to watch my wallet at every turn.  This trip was no exception.  But, before I begin, I want to tell you why I am going to elaborate on my experiences with the airline.  Building lasting relationships with customers requires that you care.  Of course, we as businesses are here to make money.  However, the best path to making money over time is a loyal set of customers.  Loyal customers will suffer through pain and frustration if they believe they are a part of your team.  One of Delta’s main competitors in the United States is a good example.  Airtran, now Southwest, was loyal to me for many years.   Their rates were far and the service was good.  Most of all, I felt they wanted my business.  For that reason, I would often choose to fly them, even if I had to pay a few extra dollars.

Delta used to care.  As a young traveler, I used to enjoy flying them.  I built my way up to Silver Medallion for several years back in the late 1990’s.  One year, I even made Gold status.  As I flew for business and personal, I felt I was getting the benefit of many painful miles.  Then, back in the early 2000’s Delta got greedy.  They stopped caring about anyone but the most elite travelers.  It started with changes in their loyalty and rewards program.  One day they decided that all tickets were not equal.  If you paid less for your ticket, you got fewer miles.  This may have seemed like a great idea at a high level, however, it felt awful to me as a traveler.  I have and continue to fly a lot.  One year I made elite on Airtran and Silver Medallion on Delta.  As an entrepreneur, however, I am very price conscious.  I am very unlikely to pay more just to get more miles.  And, I am going to enforce the same for my employees.  Given that all passengers suffered through the same number of hours in an iron tube in the air, Delta’s changes seemed wrong to me.  Further, it convinced me that I would not win at Delta’s new game.

Delta did a few other things to make me feel on guard as a customer.  They made you pay more to get the benefits of any elite status.  For example, you had to pay more to have the opportunity to upgrade.  Further, they were giving out tons of free miles through credit card rewards with the promise of free flights.  By contrast, they made it twice as hard to find free seats on flight.  As I accrued benefits on Delta, I was denied the ability to use them every time I tried.  Miles tickets were either not available or cost twice to three times the points.  Transferring points was cost prohibitive making combining points with my wife impossible.  The advertised benefits I worked so hard to accrue melted into a useless pile of empty promises.

By contrast, Aitran made it simple and easy for me to both get credits towards flights as well as use those credits.  For a long time, I was accruing about one flight every few months.  I used these free flight regularly to fly to visit friends or to fly my family in to visit.  The process was painless and easy.  Further, free flights were available on most routes.  Overall, I felt Airtran was fair and reasonable with their free flights.

Other examples of the ease of using Airtran were their standby policy.  They allowed for standby within the same day.  Delta, by contrast, required a $100 fee to go standby (now $50).  Further, there web policies are all about maximizing the money they can take from me.  I have found that they raised the rates they present to me just because I search a particular flight multiple times.  Another thing I noticed about 5 years ago was that the width of the seats were smaller.  When I sit in a Delta coach seat, I feel more cramped than on other airlines like Southwest.  Overall, I feel Delta cares only about collecting as much money from me as possible at every opportunity.  My relationship with Delta has been adversarial and hostile for about fifteen years now.  Engaging with Delta raises my blood pressure.  It makes flying with them stressful.

Now, Delta is in my home town.  I live in Atlanta.  My neighbor is a Delta pilot.  Many of my friends have worked for Delta at one time or another.  Because of Delta, I can get just about anywhere in the world without a layover.  For many reasons I should be wanting Delta to thrive and survive.  However, their unwillingness to see my relationship with them as anything more than a revenue stream makes me frustrated and angry at their existence.  The bottom line is that I use Delta because I have to, not because I want to.

Even today, I had yet another annoying experience with Delta.  I carry on luggage 99% of the time I fly.  I like to spend as little time as possible in airports.  Waiting for baggage at baggage claim is frustrating for me.  Today I was instructed to gate check my bag as I boarded the plane.  To my major annoyance, several of the baggage bins where empty when I got on the plane.  Once again, Delta has made my life more painful than it has to be with no proper explanation for why.  More than likely, they had some revenue generating reason for me to check my bag, and a complete lack of concern for my discomfort.

As entrepreneurs, what can we take from my experience with Delta?

1)      If you can understand pain, you can find opportunity.

Airtran and Southwest realized that average customers wanted to feel accepted and appreciated.  They viewed all customers equally and treated them fairly.  They were honest about what they were going to deliver and their rates where fair and transparent.  They accepted all customers with open arms.  Over time, their fleets and services were comparable to the major airlines.  They built trust and understanding with their customers by properly managing customer expectations.  They treated their customers as partners, not just revenue streams.

2)      Partnering with your customers creates loyalty that may allow you to overcome well-funded, larger competitors.

As you look at your customers and prospective customers, always keep in mind the need to create loyal followers.  Your customers, if properly incentivized and directed, can become your army against your competition.  They can help you overtake the eight hundred pound gorilla in your industry.  Show them you care about their needs, and they will care about your success.  See your customers as allies.  There are many times I will pay a bit more to fly Southwest (who now owns Airtran) because I can trust they care about my needs.  By contrast, Delta has taught me time and time again that I must buy their trust.

3)      Loyal customers will suffer through challenges if you show them respect and loyalty in return.

Airtran and Southwest are by no means perfect.  From time to time, I have had experiences on these airlines that were less than optimal.  However, given that they are flexible with me on rates and benefits such as free flights and standby privileges, I am willing to work with them when they falter.  Honestly, most of the experiences that have frustrated me with Airtran and Southwest are long gone in my memory because I feel they want my business.  Many of times, I have been able to book a flight on these airlines within days of a trip and the rates presented where tolerable and fair.  The seats I usually get on these last minutes purchases are business class allowing me extra benefits and perks.  On Delta, I am often paying two times the price to get a coach class seat where I may not even get to store my carryon luggage due to my lack of status.

As a final note, I thought I would add my thoughts on what Delta could do better.  I realize that I may not be Delta’s target customer due to the fact that I don’t pay full price, and that I do not travel a 100,000 miles a year.  However, Delta could at least show me that they care in the form of some flexibility.  Tricks like changing fairs based on how many times I search Delta for pricing on the same flight make the customer feel distrustful.  Delta could be honest about their pricing and their benefits program.  Tricking me into thinking that my Skymiles are valuable, then making it impossible for me to use them just makes me angry as a customer.  Just the act of traveling is exhausting.  Knowing that I not only have to build up the energy to make my trip, but also knowing that I have to be prepared to battle my airline at every turn makes traveling a miserable experience.

When I was a rower at Cornell, I was in the top boat all four years.  I was a leader on the team.  I realized early on that every person on the team helped make me stronger and faster.  I would spend time talking to the slowest rowers on the team.  I would tell them that they mattered.  I emphasized that every time they got faster it pushed the top guys to get faster as well.  I made sure they knew that I cared.  As a whole we ended up with some pretty amazing results over the years.  I also created some very loyal friendships in the process.  You would be surprised at how little it can take sometimes to show people you care.

Cashflow – Part 2

Hopefully, you are now using and managing a cashflow.  Given Part 1 of this blog, my goal was to get you to at least think about tracking your money on a regular basis.  If all you did was make some wild guesses about your spending and track the actuals on the template I provided, you are miles ahead of where you where before you started using the cash flow.  My goal with Part 2 is to get into more detail about how you can manage cash and make better decisions with your cashflow.

Let me give some more examples of why a cashflow matters.  A friend of mine has been growing a consulting practice for some time.  Her practice is primarily herself.  Over the years she has done very well, and her income has grown.  Recently, she was telling me about how much money she had in her bank account.  I asked her what her cashflow looked like in six months.  She doesn’t have one, so she doesn’t know.  I told her that she hadn’t really accrued anything until she understood how her spending versus cash coming in looked in six months.  The problem is that current cash on hand can be deceptive.  Most of the cashflows I have reviewed or managed over the years turn out to be very lumpy.  Yearly or bi-yearly expenses often cause your current cash to dwindle faster than you think.  Given that you have lots of cash in the bank, you may decide to buy something you wanted or give yourself a raise.  Six months from now, however, you may be borrowing money to catch up.  Without a plan for how you are going to manage your money over the coming year, you are at a loss as to what the money in your bank account means.  You really need to project out expenses versus income to get an idea of what you can do with the money currently available to you.

Now, let’s assume you took my advice in part 1 and that you have a cashflow spreadsheet.  How do you get better about using it to your advantage.  The first thing to think about is prioritization.  What expenses do you have to pay no matter what?  What expenses are going to be very hard to pay if you delay paying them?  If your phone gets turned off, how does that affect your business?  What vendors will work with you, and what vendors are inflexible on payments?  For example, can you negotiate 45 or 60 day terms with some of your vendors in order to allow you more time to accrue revenue against those expenses?

Negotiating better terms can make a huge difference in your cash flow.  In one of my past businesses, I had to spend a lot of money in order to acquire product.  We were producing a printed product, and we would spend about $20,000 to print our product when we performed a run.  A print run of this size might last us anywhere from 2 to 4 months before we had to print more product.  Early on in this relationship, I negotiated 60 day terms with the company that printed my product.  This was critical, because it allowed me more time to accrue sales, and collect the money to pay these bills.  Since I knew my cashflow, I was able to pay off this vendor consistently.  That helped me build trust with them that I would pay when I said I would.  The 60 day terms also allowed me to make sure I had the cash to pay more urgent bills, like payroll, phone and utilities.

Personally, I have a few key rules.  I pay my employees as soon as cash comes in.  Without employees, a business can be very hard to operate.  Also, they are providing a service with likely no upside other than their salaries.  Delaying payment to them is putting them in a bad position.  Not paying them in a reasonable amount of time can also decrease productivity and moral.  Further, employees are often a large part of any businesses expenses.  Catching up on missed payroll can be very complicated.  Overall, it is good to prioritize payroll.

I also pay my subcontractors right away, especially when they are a large portion of my expenses for a customer.  For many of my contracts, subcontract expenses can be significant.  Delaying payment of subcontracts, especially when that requires you to pay subcontractors out of revenue from future customers, can put you in a place where you may never catch up.  When you create this situation, you may not even realize that you are borrowing from future revenue.  The more you do this, the more likely you are to be running negative on your profit.  It can be very important to pay subcontractors as soon as you get your clients payment, because you may never catch up otherwise.

Paying phone, utilities and other small bills on time can be very important as well.  These services can get cut off and really hurt your ability to continue your business.  In tough times, you may delay paying them for 15 or 20 days once or twice, but stretching it much further can cause complications.

When you pay your employees can be important, too.  Depending on how regular your income is, you may want to pay them monthly versus every week or every other week.  Again, this may allow you to accrue the money you need over the course of the month to pay them.

If you do get behind, or you anticipate being behind, it can be important to negotiate this up front.  For example, some of my businesses have had large patent cost in a given year.   The expenses accrued faster than I could pay them.  Patent cost are often a long ways away from bringing you revenue to balance them out.  They can also accrue very quickly.  In this case, I negotiated a 6 month “catch up” period.  During this period, I took the total I currently owed plus any future maintenance cost over six months and divided by six.  I put this monthly payment into the cashflow and I stuck to the payment plan.  This helped me catch up at a reasonable rate.

Cashflow can be very different from profit.  Sometimes a business may make a good profit, but it doesn’t throw off extra cash.  That could be because the business had to pay back loans or buy equipment.  In both of these cases, the cash you pay may not end up as an expense.  Instead it may end up as a liability or asset.  Another example could be that you, as an accrual business, have delayed payment on receivables for a major client.  I have had my business show strong profit or lose in a given year while showing practically break even cashflow.

If your business is throwing off cash, then move the money off of the cashflow.  You could do this by having a savings “expense”.  Every time you put money towards this expense, you can move it to a savings account.  This will allow you to keep your cashflow close to breakeven while accruing cash.  Exercising this practive in your cashflow will force you to make sharper clearer decisions about your expenses.  Having a cash flow that shows a large amount of money accumulating does not lead to good decision making.  It is human nature to get a little sloppy by not thinking through the impact of each expense.  I highly recommend moving money off the cashflow if you can.  It will force you to get good at managing your money, even when things are going great.

Your cashflow will allow you insight into how everything you pay effects your future cash.  It can also allow you to comfortably save money or pay out bonuses without the concern of how that will impact your future cash.  I highly recommend that any one running a business set up a cashflow.  Without it, you will find yourself time and again stressed about paying your bills.  With a cashflow, you will have the tools to breath a little easier, even in very tough times.  You will also gain a level of comfort and confidence in your decision making regarding who to pay and when.

Building the Right Board of Advisors

One of the easiest ways to extend your team and build your credibility in the early stages of your company is to build a Board of Advisors.  What is a Board of Advisors you might ask?  A Board of Advisors is a group of people who are loosely connected to your company that can help you with connections, operations and credibility.  Personally, look for three main characteristics in my board members:

• Workers: For working members of the board, I look for people who are going to spend time helping me get through operational hurdles.  Examples of operational issues could be employment decisions, financial challenges, deal structures (partnerships, licensing or sales), or simply moral support.  Board members of this type will take the time to meet with you for a couple of hours and hammer out the details on these issues.  These people will often give you more time than your other board members (although you should always keep the time you use of board members to a minimum).
• Connectors: These board members either have great connections or know how to get to people you want to connect with.  They will help introduce you to clients, investors and/or strategic partners.  They may help you find talent as well.  They are very well connected in the markets you are pursuing.  An example of a connector in the medical device market might be a VP level person or higher at Medtronics.  Most of your interactions with connectors may be as simple as email request for introductions or short phone calls of a similar nature.  If you are looking for financing, you may want to include a board member who is prominent in that community.
• Centerfolds: These members are people that may not be able to do much for you directly, but will look very good on your website and literature.  They may not be available to attend many meetings.  They may not even connect you to too many people.  However, the fact that they are showing an interest in your company by joining your board means something to either investors or customers.

Board members may fall into one of these categories or all three of these categories.  I have found it important, however, to make sure they fit at least one of the above categories.

In order to attract people to be on your Board of Advisors, you need to think about how you will incentivize them.  A stipend is always a nice way to keep them motivated, but in the early stages this may not be possible or practical.  Other ways to incentivize them can include stock grants or stock options.  Over the years, I have been told by potential board members that one half of a percent of the company is a common compensation for a board of advisor member.  Again, this can be provided as stock or as options for stock at some future date.  Stock incentives can be a great way to compensate these members of your team.  First, it reduces the amount of cash you have to spend.  Second, it properly incentivizes your board to make your company worth a lot of money.  However, in some cases it may be simpler and more practical to pay them for their time.

Beyond monetary compensation such as stock or stipends, it is important to understand why potential board members might be interested in working with you and your company.  Sometimes a prospective board member may simply be interested in helping.  Maybe they like you and want to see you succeed.  They have a genuine interest in your technology, product or service.  They may see opportunities to connect with your other board members.  Being on the board may simply look good on their resume.  In any case, be aware of the non-monetary reasons these people are interested in helping you.

To be clear, Board of Advisors members have no fiduciary responsibility to the company.  Members of the Board of Directors, however, do.  In the early stages of your company, it can be important to keep your Board of Directors quite small.  Membership of the Board of Directors is typically reserved for people who either invest a significant amount of money in your company or who are founding members of your company.  In this blog, I am specifically talking about Board of Advisors.

Although Board of Advisors members have no fiduciary responsibility, it is still important to make very sound decisions about who joins this group.

Realistically, you should keep your Board of Advisors to a reasonable size.  I like to target about five or six board members at most.  It is unlikely that you will have the time to leverage more than five or six board members.  And, getting more than five or six successful, busy people to come together for a meeting can be quite challenging.

When building a Board of Advisors, think big!  You want to pull in the best people you possibly can, even if you are starting with nothing.  If you truly have an innovative company, this is a very low risk way for smart people to get engaged.  Think very big when pursuing board members.  If you are respectful and polite when you ask, your worst case outcome is that someone tells you no.  However, even if the say no, they now know who you are.  When I started with my most recent venture our team thought Mark Cuban would be a good candidate for our board.  After sending emails on several different email accounts I found using Google, I finally got a very polite no.  Even though he said no, I did manage to get an answer from one of the most famous and successful entrepreneurs of our time.  I have to say that I was very impressed by not only his willingness to respond, but the courtesy of his response.

In pursuing board members you do not know, do your best to connect with them at their level.  Read anything you can about them.   Come up with a title that catches their interest.  Mark Cuban’s was promoting people pay a lot of taxes as part of becoming very wealthy in one of his blogs.  In my subject line I put “My Attempt to Pay Lots of Taxes”.

Be sure to leverage any board members you currently have to help you pursue new board members.  These people may have better luck connecting to very high level people that could put your company into overdrive.

Once you have gathered together members of your board, be sure to promote them on your website and in your other company literature.  Include them in your executive summary.  You may even consider including them in a press release.

Now for the important part: how you use your board.  At a minimum, you should keep in touch with board members every month or two.  If possible, you can organize a regular formal meeting where everyone comes together either in person or on a conference call.  During these formal meetings you want to have a structured agenda.  A portion of the agenda should be focused on updating your board on key activities in your company that have happened since the last meeting.  The rest of the agenda should be focused on getting their advice on key issues, opportunities and challenges.  Keeps these meetings focused.  Take no more than an hour for these meetings.

Informally, I like to reach out to individual board members as I have a reason to contact them.  Sometimes I may simply send an email about needing a connection.  Other times, I may ask for a meeting to discuss a deal or address an issue.  In some situations, it may be necessary to work intensively with a board member on a critical issue for days or weeks.  With other board members, you may not connect with them for months.  Be sure to keep in mind that these people will have many other demands on their time.  Be as efficient as possible with their time.

Realize that your board may be interested in interacting with each other.  Offer or invite opportunities for them to connect with other board members with or without you.  This can only help your cause.

Finally, it is OK to rotate the members of your Board of Advisors as your company grows.  The board members you need early on may not be as useful as your company grows.  Members of your board should respect your need to grow and change.

In the early stages of your company, you are typically cash strapped and resource poor.  Building a Board of Advisors can be a way to create a virtual executive team while minimizing your cash requirements.  If approached in a positive and respectful manner, people are willing to help.  Challenge yourself to think big and bring together a team that will help you achieve your goals!

Cash Flow ~~~~

Cash flow is the life blood of a business.  As the leader of an early stage company, properly managing cash flow should be one of your biggest priorities. Investors and accountants may be concerned about profit and loss statements or balance sheets, but the survival of your business will weigh much more heavily on proper management of the cash you have to pay your financial obligations.

Let me explain. Profit and loss statements are often run based on accrual accounting. What this means is that revenue is booked when it is earned and expenses are booked when invoices are received.  The actual movement of cash to and from your bank account may happen significantly later than the timing reflected on your profit and loss statements. Further, good profit and loss management has a lot to do with tax management.  Depending on your tax situation at the end of the year, you may book some receivables or payables in December or January.  These adjustments can confuse your understanding of your cash position.  In accrual accounting, you also deal with accounts receivable or accounts payable balances that transfer over from last year.  Further, equity raised or dept principle paid may represent movement of cash, but none of this activity shows up on your profit and loss statement.  For this reason, you can have profitable years were you are borrowing money to pay bills or loss years were you have plenty of cash.

Having a good budget may give you some guidance, but I have found that a budget alone does little to help you understand the effect of your income and expenses on your available cash now, one week from now or six months from now.  Use your budget to give you insight into how to set up a proper cash flow management system, but I recommend you not rely on a budget to help you understand how to manage your cash.

For most businesses, good cash management can be done through a simple Excel spreadsheet.  The spreadsheet needs three main elements. First, I recommend a set of rows at the top of the spreadsheet listing your income sources. Each row in the income section should represent a client or other party that puts money in your bank account (income). At the bottom of your income sources, create a row representing the total of all income sources for that column.  Next, create a set of rows for people to whom you pay money (expenses). List out each person or vendor you pay. You can lump big items like payroll or credit card payments into one group for efficiency. At the bottom of expenses, create a row with the total of all expenses, just like you did for income. Once you have your rows labeled, you should add column labels for every week for the next year.  Although I recommend picking Monday or Friday as the date you choose for your labeling, any day of the week will do.  At the bottom of the cash flow sheet, create two more rows. Row one will be the Total Difference, which is the difference between the income total and the expense total for that column.  You can label the next row Cumulative or Total Cash.  For the Cumulative row, you will add the Cumulative value from the last column to the Total Difference from the current column. For the very first week you can simply add the amount of cash in you bank account to the Total Difference in exchange for the Cumulative value, since you have no previous Cumulative amount.  See below:

NOTES: This is a fictitious example of a cash flow spreadsheet.  I have added some color coding to track certain activities.  The orange color represents items that have been received or paid.  Color coding these items is important in tracking what is actual and what is still pending.  On the Cumulative line I have added a conditional setting to turn any cell purple when the balance goes below $1,000.  Visually, this color coding allows me to quickly see any low points in my cash flow.  The Balance column can be a place for you to put money due or owed that you are not ready to commit to the cash flow.  For example, you may be performing work for a customer where you are unsure if or when you will get paid.  You may want to put any unsure amount(s) in the Balance column to remind you of this potential income.  You can then wait until the invoice is sent to move it onto the cash flow.  Finally, I like to take notes on any item that may not be self explanatory (see the NOTES row).  This allows any one viewing the cash flow to have a better understanding of what each cell means.  This personally has saved me headaches when reviewing upcoming expenses or past payments that seemed unusual.

Good cash flow management requires understanding the impact of every income or expense on a weekly bases. Given that due dates for bills vary throughout the month, bills must be paid weekly.  I recommend not going more or less granular than weekly.  Using your budget, plug in all the items you have to pay over the next year.  Be honest about everything you will have to spend cash on. Fill in the income sources you have. It is important to be conservative when listing income. I only put income on the cash flow when I feel pretty sure I know it is coming.  Remember that this spreadsheet is not for impressing investors or others, it is to help you manage your cash.  When building and maintaining your cash flow worksheet, be very realistic.

In the example spreadsheet I have provided above, you will notice my balance gets pretty low during some weeks.  This is OK.  Actually, it is the point of this entire blog.  Your budget may tell you that you are going to make a lot of money every month.  The reality, however, may be that you have one week out of every month where you are out of cash.  Some companies may find that certain months during the year are very tight months due to yearly expenses that come due.  All of your other financial management tools will fail to tell you when these short fails will happen and how bad they will be.  This is why good cash flow management is super critical.

Hopefully you will see a Cumulative line with all positive numbers. Honestly, though most small business may always have negative Cumulative balances a few months out. During hard times, you may battle to keep your Cumulative balance positive on a month to month basis.  It is critical to be OK with seeing negatives at some point in your cash flow forecast. Being very honest about what you have to pay and what money you feel certain will arrive will provide you the information you need to get very good at understanding what money to chase and who you should pay on a weekly basis. Further, you will understand the impact of each decision on your cash position now and in the future.  You will also gain insight and visibility to yearly cycles in your business where cash becomes very tight.

ADDITION NOTE: Some business may draw on a line of credit to cover monthly or yearly lows.  I recommend adding a row labeled Line of Credit to manage the money coming in and out of your line of credit.  You can add a separate Expense line for interest paid or you can simply include that amount in your Line of Credit row.  The goal of this spreadsheet is good continuous cash flow management, so don't worry about adding Line of Credit or Credit Card balances to this tool.  The more complicated you make the spreadsheet, the less likely you will manage it well.

Even if you have no desire to learn the ends and outs of accounting, I highly recommend you learn good cash flow management.  You may want to implement this system for both your company and your personal finances.  If you keep up with the spreadsheet weekly, you should find it only takes a half hour to an hour a week to manage it.  This may include deciding what bills to pay and paying them.  Setting up the spreadsheet initially may take some time, but it is well worth the effort.

If you think cash flow management is simply an operational detail, you are wrong.  Good cash flow management can be a huge energy booster for you and your company even in the hardest of financial times. Understanding the impact of your financial decisions can help keep you and your team stay calm or even get excited during challenging financial situations.  Knowing that you are going to make it through a tough month and knowing that you will recover well shortly after a tough period can be a huge confidence booster.  Simply knowing that you are in a tough spot can give you the knowledge you need to rally your team and overcome difficult periods with confidence.

On a final note, realize that it may be hard for your brain to comprehend why the numbers are what they are.  Your budget may be telling you that the numbers just don't work, but your cash flow may show that everything is fine.  You may show a loss on your profit and loss statement, but have plenty of cash.  Avoid comparing or attempting to understand these discrepancies.  Obsessing on these differences will only cause headaches.  Use the tool for it purpose and only its purpose, cash flow management!

Best of luck in your cash flow management, and may all your Cumulatives be white;-)

Celebrate the Small Wins

One of my mentors once told me that the highs and lows in early stage ventures can be tremendous.  The mentor I speak of experienced startups from the level of CEO of an operational company with significant backing.  Just imagine his perspective if his experience would have been with an earlier stage venture.  Of course, he left the stability of an executive level position at a large hotel company to pursue a startup back in the late 90’s.  Regardless, his perspective and his point are worth considering.

In my fifteen years of experience in the world of early stage companies, I have learned that celebration of even the smallest successes can help overcome the lows mentioned by my mentor.  So much of what we do on a daily basis may not lead to any meaningful result.  For example, only a small percentage of the people we as entrepreneurs talk to on a daily basis may be able to bring us money.  At a conference recently, an entrepreneur who has launched many successful consumer products mentioned that he had to talk to 800 people to get 20 or more to invest in his latest venture.  In the early stages of a company, your learning curve is incredibly steep and your opportunities are quite volatile.  The deal you thought would save your company this month may disappear overnight.  The partner who was going to help you triple your revenue in six months may stop returning your calls.  To someone who is used to solid, trackable progress, this instability could be devastating.

It has been my experience that readjusting your concept of success is necessary in order to stay positive and survive in an early stage venture.  Celebrating the smallest wins, such as connecting with a key decision maker on LinkedIn or getting an email returned from an executive at a large potential client, will help you stay positive, happy and healthy.  I go through weeks where a single returned phone call could be a reason to jump around my office in excitement.  Again, a considerable percentage of time, that phone call may not lead me to the deal I was seeking.  However, having 10 connections with people like the person who returned my call could lead to much bigger success.  The key is to get excited and stay excited.

In a small company, everyone’s excitement and enthusiasm matters.  In a company with 5 people, each person has 20% impact on the success of the company.  You could argue that some people have a bigger impact than others, but that argument may lead you to underestimate the impact of one negative person on the success of your company.  Getting your team to celebrate every small win could help everyone to feel and stay excited.  You and your team will need this energy to overcome the many hurdles you will experience on your entrepreneurial journey.

Now, some people may say they have no time to celebrate every win.  My idea of celebrating is not stopping all productive activities and throwing a party.  Save those celebrations for the big moments.  My version of celebration is more like sitting back in your chair for a few minutes, smiling, and enjoying the feeling of just having accomplished something.  When I say celebrate, I am talking about embracing the powerful, positive feelings you receive from success, even if only for a few minutes.

Often times as entrepreneurs we are chasing big dreams.  The goals we look to accomplish may not have been attained before.  All entrepreneurs experience roadblocks and setbacks.  Don’t let Hollywood make you think otherwise.  In my experience, those teams that find ways to keep celebrating stay happier and healthier than those that focus only on celebrating major successes.  Staying in the game is the best way to be successful as an entrepreneur.  Staying happy and healthy is the best way to stay in the game.

Celebrate next time you get through to someone you have been pursuing.  Celebrate every time you get a sale.  Celebrate when you reach a critical technical milestone.  Create an environment of success, and success will find you!

Without Balance Even The Strongest Will Fall

Will running my last company, I came up with the quote "Without balance even the strongest will fall".  My intent was to articulate the delicate dance we must maintain as entrepreneurs between our work life and our personal life in order to stay motivated, happy and productive.  Too often I hear people talk about the process of starting your own company requiring 15 hour days 7 days a week for several years.  Tails of sleeping at the office or not taking a vacation for years are all too common among entrepreneurs.  It would appear that to successfully start and run a company, you need to forget your family, friends, hobbies and social life for several years.

In real life, we need our support network of friends, family and fun in order to tackle the seemingly impassable mountain we are about to climb.  Starting a company absolutely takes focus, passion and energy, but not at the expense of your mental health.  Further, we need connections with friends and family in order to be successful.  We will need to rely heavily on friends, family and fun to keep us motivated.

In my 15 years of entrepreneurship, I have found the highs and lows to absolutely magnificent.  Although the highs can be quite amazing, the lows may be more devastating than any you have experienced in your life.  If you are stressed, overworked with little or no connection to family and friends, these lows could be insurmountable.  On the other hand, a strong base of family, friends, hobbies or other outlets will allow you to move through these lows with minimal long term impact.  Personally, I have found a strong base to allow me to turn many seemingly low points in my entrepreneurial journey into life changing successes.  Having other outlets in my life allowed me to step back and reflect on the situation and gain the clarity I needed to move forward in a more positive direction.

As a final point, I want to tell a story about my days as a rower at Cornell.  In rowing, there are no superstars.  I rowed in a boat with eight other rowers and one coxswain.  It took all of us working in harmony to make the boat move fast.  I was in a position of leadership within the boat.  I never realized my impact until one day the rower in front of me turned to me and said “Tyler, when you have a bad day, the boat has a bad day.”  His comment hit me like a ton of bricks.  Until that moment I never realized the full impact of my leadership within the boat.  From that day forward, even when I was suffering, I had a positive attitude.  To my delight, we went on to win the championship that year.

The same is true for us as entrepreneurs.  When we are out of balance, our team is out of balance.  As leaders of our teams, we must stay in balance so that we and our team can address the seemingly insurmountable challenges we will face.