A young company that focuses on personalized solutions needs to generate near-term
revenue to meet expenses. There are also options for debt or equity financing,
but the terms for each will equally depend on near-term revenue potential. How
do you generate near-term revenue?
from the CEOs:
in terms of the referenceability of early customers. As a new company, the first five customers
define the company to future customers.
core values of the company will help clarify how to make early choices.
just go for the easiest closes.
a chart of potential customer prospects:
potential prospects into groups.
is the deal model and key value proposition for each group?
a video and communications package to demonstrate the company’s benefit to each
are trade-offs between the different deals that the company will pursue:
fast deals are most likely to meet immediate cash flow needs.
biggest deals may involve the creation of LLCs. These will involve both more
time and additional legal fees.
sure that early deals align with the company’s core brand.
outsourcing to speed the provision of services to early clients. Build this
cost into your billings. Assure that the funds from early deals flow to or
through the company. This will improve the financial story to additional
serving special interest groups. Their potential value is that they work for
their passion more than for money. If the company chooses to work with one or
more of these groups, assure that customer selection aligns with company values.
current focus for near-term monetization is on merchandizing. As an alternative,
consider charging a separate fee for the use of company IP. This may give clients
additional incentive to utilize company technology to monetize their
Situation: A CEO notes that the national debt has nearly doubled over the last 8 years and the Fed is talking about raising interest rates. It’s not clear what impact the debt, or rising interest rates will have. Has this impacted your business and how are you coping? What impact will rising interest rates have on business?
Advice from the CEOs:
Impact on business and customers.
The prospect of either rising interest rates or taxes increases uncertainty – customers are taking longer to make purchase, expansion and other decisions.
Companies are not spending the cash that they have out of concern over possible future expenses or the possibility of a downturn. Large companies have trillions of dollars of cash on hand. Some of this is held off-shore because of the tax consequences of repatriating the funds.
Lack of consumer demand holds back investment in production expansion.
Feeling of loss of control.
More concentration of wealth in fewer hands.
More people, old and young, are opting out of the business economy.
What are you doing to cope?
More involved in collections to keep this under control.
Delayed payments from big customers are part of the problem – conservative financial management.
Manage liquidity and cash – cash is king!
Adjust lifestyle and delay purchases – for example buy smaller cars.
Scrutinize contract terms – especially AR.
Scrutinize our business model. For example look at subscription models or Great Game of Business models.
Utilize those who are normally unemployable but trainable for repetitive task jobs. They work hard and produce good work.
Situation: A company has been growing within budget. In the near-term they anticipate an opportunity for significant growth. The challenge of this ramp-up is that it will sap existing financial resources as expenses associated with the ramp outpace revenues. In growth terms this challenge is known as financing the inflection point of the hockey stick. How do you finance a ramp-up?
Advice from the CEOs:
Investigate a number of different financing options and combinations of options. While historically the company has been financed by venture capital, as you finance your ramp think beyond venture capital as the sole source of funds.
Investigate corporate partners who would consider the company a strategic investment. This creates a higher valuation for the company than you will find with VCs alone.
Within the VC community, to raise a modest level of funds focus on 2nd and 3rd tier funds – particularly those who specialize in the company’s technology and market and who will see this opportunity as fitting their portfolio strategy.
Outside of the VC community, look at banking and fund options that offer creative ways of using both investment and debt to fund the company through the inflection until you are again cash positive. Examples are Comerica Bank that has been building its position among Silicon Valley start-ups and venture capital firms, and Paradigm Capital that will provide loans by collateralizing your IP.
Look closely at your IP portfolio to maximize IP value to either VCs or other funding sources. If your IP position is strong it boosts your ability to attract funding.
Situation: A company had several huge orders last year but ended the year with a low backlog. Sales forecasts are rosy, but acceptance of proposals and initiation of work is hard to predict because the company’s products are just a piece of much larger projects with variable timelines. How do you plan spending in this environment – conservatively to backlog or more aggressively to the sales forecast?
Advice from the CEOs:
It is important to understand the magnitude of difference between spending under the two scenarios. For example, if a conservative spending plan means major cuts to product lines or business compared to the more aggressive plan, then analysis and what if scenarios are more complex,
What are the company’s cash-flow and debt situations. If you are cash-flow positive with little debt, this increases flexibility. Another consideration is the company’s attitude on debt.
Be wary of the healthiness of an unused credit line. Companies have seen unused credit lines cut and accounts cleared when they have started using the lines after a long dormant period.
Exercising the credit line may increase flexibility.
Look at your approach to forecasting and spending. How far out do you forecast? How effective have past outgoing forecasts for several quarters been, and what confidence can do you have for the next quarter, the quarter after, and the quarter after that? If you are reasonably confident one quarter out, you can plan spending on this. If you can adjust spending relatively quickly this gives you more leeway.
Establish leading indicators to improve future forecasts.
What is your win/loss record on proposals, and a conservative estimate of what this ratio means for revenue?
Other examples include sales calls to new customers versus new key customers won, and similar sales metrics. These metrics can help to govern expectations based on sales forecasts.
If your sales team is not performing, look at changes to sales management. This may wake the team up and prompt them to go the extra mile for contacts and contracts.