I was recently on a plane doodling and thought of some funny / interesting stories from 25+ years of working and traveling. So I decided to write them up as short, random chapters of a non-book with the title of this post. Hope you enjoy them and / or find them interesting. Certainly the value will be at least equal to the marginal cost of the book (zero)…
The USA, early 1990s to mid 2010s
Recently I saw this little blurb in the NY Times business section which perfectly encapsulates one of the most important lessons I’ve learned in all my years of working – it is all about cash flow.
The simplest measure of success for a business is bringing in more cash than you pay out and having a positive bank account balance at the end of the month. When you are in charge of a business and attempting to make your payroll these sorts of concerns should always be “top of mind”.
Cash Flows in a Smaller Firm
When we started our consulting firm you had to put up enough capital to pay salaries for a while (we took a small “draw” to keep us afloat, not our former total compensation) until we were able to bring in cash from customers. However, this is a longer process than you might imagine if you weren’t educated in the realities of all the crucial steps in the chain necessary to get paid. Since we were accountants and finance people we went into this with “eyes wide open” but I can only imagine the types of trouble that creative types meet up with when facing this same conundrum.
Thus our sequence of cash flows at a high level when starting up a consulting firm looked like this:
– Additions – capital contributions from partners. Based on the equity you wanted in the final firm, you needed to put in capital (that maybe you’d never receive back) to start up the firm
– Additions – loans. We didn’t take out loans but we could have. Banks generally never loan you money unless you have collateral and we didn’t so it would have been credit card debt at the time
– Reductions – office space and rent. We needed to start somewhere. Initially we just used a room in our boss’s house, which worked out fine, and later we rented a space near a bowling alley. Note that everyone you are renting from eyes startups with a rueful glance and you can’t expect to get much in the way of credit because they don’t want to end up holding the bag
– Reductions – insurance, legal fees, taxes, office staff, computers. All the ephemera of an office needed to be purchased but we did it second hand. We also used our own skills rather than hiring third parties whenever possible (almost all of the time)
– Reductions – payments to core staff. We used “draws” which were minimal amounts to cover life expenses and in a way were payments in advance of what you’d earn, not like a salary that you receive regardless of the end state of the enterprise and your personal contribution. For office staff we picked up later we needed to pay them a normal salary
All of this happened before we even met a potential customer. Then we needed to fly out and meet customers (we already had a lot of connections; much of our early success came from bringing on existing clients from former consulting firms), convince them to sign us up, agree on a price and contract terms, and then begin doing the work.