Founder & CEO of Treble. Entrepreneur bootstrapped to $1M+ ARR since 2016. 20-year PR pro. Passionate about turning ideas into results.
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Building a business from the ground up with your own savings and revenue strictly from the business itself is challenging in the best of times. Even during the decade-long bull run, bootstrapping my business — and ensuring it is set up to survive over the long-term — was an epic challenge.
Fast-forward to today, and a global pandemic has shifted nearly every aspect of our lives. Business trends have changed significantly, from the growth of remote work to geographic shifts of talent from expensive tech hubs to more affordable areas.
Bootstrapping makes sense for service-based businesses. The exit multiples are not generally as attractive for venture capitalists, which translates to a scenario where entrepreneurs have to build and maintain a business with cash. This requires tremendous discipline and a certain amount of traction and growth.
The Illusion Of Growth In Services
Using my company as an example, we typically operate on an initial six-month client contract with a goal of parlaying that contract into a recurring one-year term. What this means across our portfolio of clients, though, is that while certain quarters can be highly profitable, the loss of a few clients can completely flip the script on cash flow. Sometimes, growth is an illusion (in its short-term nature) that can lead us to overextend the business. And that can be a problem if you have not planned ahead.
In my experience as a first-time entrepreneur, I can say the one thing that has saved the business during times of flux is that I always aimed to have enough cash on hand to know that even if no additional revenue came into the business, we could survive. And when it comes down to it, that is the number one factor: survival.
It is true that a bootstrapped business may not be able to hire as many staff members as one that is backed by venture capital. This might require the founder and leadership team to go above and beyond in terms of ensuring that service quality remains intact on the client side. That said, while VCs can take significant measures to oust leadership and make changes to protect their investment, bootstrapping allows you to grow at a pace that makes sense as opposed to growth at any cost. And the problem we’ve seen for many venture-capital-backed companies is they become dependent on the VC funding and never achieve profitability.
When times get tough, VCs evaluate their portfolios and double down on the “winners,” which typically are headed toward or have achieved profitability. It all comes down to protecting cash, whether it’s limited partner dollars, VC dollars or your own funds.
Cash Is King, So Protect It Accordingly
While this article is geared toward businesses in the services sector, the advice is generally universal in its applicability. So here are three tips for protecting cash:
1. Hire Slower
Labor is generally one of the highest costs for a business. One of the reasons we were able to scale in the early years when our revenue was lower was because we had a hyperefficient small team. We started with contractors and paid interns before making our first full-time hire. Every pay period where you can achieve peak operational efficiency while generating maximum revenue means the business is able to bank cash that protects its future. Establishing a beautiful culture with dozens of employees is the American dream — however, it can’t come at the expense of the business overleveraging itself and having to close prematurely.
2. Embrace The Work From Home Trend
We were already a remote-friendly workplace pre-COVID-19; now, we are transitioning to a fully remote agency. In terms of cash flow, this eliminates the overhead of an office lease, rental insurance, utilities and furnishings. This will likely save us hundreds of thousands of dollars over the next five years. And we’ll be able to apply those savings toward additional cash flow for the business, bonuses and key hires who don’t need to be within the same city. Remote work can be a game-changer, and embracing it can contribute to increased cash flow. It’s a win-win.
3. Adapt Your Offerings
The pandemic has ravaged entire industries, and the most resilient businesses are adapting their service offerings. We’ve expanded our offerings to include a 5-week program and a 10-week program. Why? We can win trust over the long-term and also keep revenue steady in the short-term. This type of adaptability keeps us top of mind in a competitive market and a challenging economy.
The toll of the coronavirus pandemic is shocking. Large retailers are going bankrupt and small businesses are struggling. This is a time when every business needs to make the hard choices to protect its future. Hopefully, some of these tips help guide you down that difficult path toward the light at the end of the tunnel.
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Author: Ethan Parker, Forbes Councils Member
