Just over a year ago, we wrote about what we’d learned in our first year of business and what we could have done better. The article had positive feedback and seemed to spread quite wide, including a fairly large audience in Microsoft in the States. How our wandering reflections became popular in one of the largest companies in the world is both testament to the wonderful connectedness of the modern age and that people will read anything at a push.
So here’s what we’ve learned after 2 years. Year 2 for us has been an enormously successful year, having beaten tier 1 consultancies to major contracts in household names, but once again it has been far from perfect. Hopefully the lessons we’ve learned will be useful to others on their journey. Many of them are obvious when looking from afar, but it’s often hard to see clearly when you’re in the thick of it.
Cash is king…
Managing cashflow is hard and it’s super-duper hard when you’re trying to grow at the same time. Quite often, despite best intentions from clients, you end up paying your employees and sub-contractors well ahead of receiving payment for the services they have provided. Sometimes, receivables can be several months behind outgoings and this is compounded if you are growing at the same time.
At some point, you will end up looking at the books with people to pay and little cash in the bank, despite impressively large outstanding invoices with clients. This isn’t a sign of failure – it’s the reality that people pay late and growth is hard. For us, we grew 500% from year 1 to year 2 and making this work financially without selling our soul was very difficult.
Do not under-estimate the amount of working capital you need to keep your business liquid. Very early on, work out a number (or percentage) that will work for you, add some more onto that number and plan for how you get there as quickly as possible.
Also, don’t underestimate how long it will take to get there – it took us over a year. Before then, you have to understand where your additional capital is going to come from when you need it, because need it you will.
But it’s not the only game in town!
Unless you’re a VC-backed, unicorn-in-waiting that laughs in the face of debt, pursuing revenue at any cost isn’t a sustainable business model. Everyone wants to scale quickly as it’s ‘cool’ to be high growth, but you’re building on thin air if you’re not accumulating financial reserves to support the fact that the money is rarely in your bank account when payment terms suggest it will be.
Revenue drives business growth, but profits make the business sustainable. Without focusing on profitability, you won’t build up the financial buffer needed to manage cashflow and your business will be running the gauntlet from month-to-month. No-one needs this level of stress.
Establish an acceptable profitability level for deals in your organisation and only consider doing business at a lower margin level if there’s a wider stratagem in play. If there’s no wider masterplan, sometimes the best thing to do is say no – if the work isn’t going to help you increase levels of working capital materially, you’re actually just over-extending cashflow even further. It sounds simple and obvious, but turning down work is a difficult thing to do if it’s your business.
Be more confident (but not overly so)…
One of our biggest learnings this year is that we can be our own worst enemies. Quite often, we’ve not charged customers what they were expecting to pay for the calibre and level of service we provided them. We didn’t even ask them what their expectations were because we felt uncomfortable talking about money. Similarly, we’ve not asked for references or case studies because we were waiting for some mythical point in the future when we could confidently look back and be certain of having delivered. We’ve also missed out on business growth opportunities because we didn’t ask for more work despite having done a good job because we didn’t want to be seen as ‘sales-y’.
Being modest and delivery focused are good traits and we want to keep being that way. We have learned, however, that if you don’t ask, you don’t get.
Finally, perhaps the most important thing we’ve learned this year is that you have to make time to ask the hard questions about where you want to go with your business. It’s great chasing sales, winning new logos and delivering projects, but is this what everyone expected when starting the business and is everyone happy? Running a business can be fun and rewarding, but, like anything, you have to work at it to keep it that way.
Shameless advertisement: we’re already looking at significant growth from year 2 to year 3 and are on the lookout for exceptional, likeminded individuals to be part of something special. If you want to be part of a pioneering consulting firm at the cutting edge of large-scale digital delivery, then we’d love to hear from you.