It is all about cash flow!
And more advice from Susan Griffin-Black, Founder/Co-CEO EO Products. Since 1995, EO has been making pure essential oil-based products with a higher purpose in mind: to make personal care that serves the whole person. As a certified B-Corporation based in Marin County, CA, they believe business must be a force for good and prioritize people, purpose, and the planet. At the same time, growing the company to a $50 million enterprise.
1.Do not start a business without understanding cash flow.
You have to be the cash flow queen. You have to understand how money flows in and out. You have to know your receivables and when to give people credit terms—making sure that they are credit-worthy and will pay you on time. Staying on top of this is critical. When we started, we were very bootstrapped. I remember back in the day Barney's paying us whenever they wanted to, 60 days, 90 days. They owed us $35,000. I sent Bonnie Pressman a fax that said something like, "come on, man, what would you do if you were me? I have this small business; I have payroll." I remember talking to this CFO and him saying never ship out what you can't afford to wait for 90 days. It is just really learning that the rhythm of how your customers pay and getting as much money upfront as you can. Make your terms "1/10", 1% discount for payment in ten days. People will pay you faster because cost is always the most critical variable in the equation. And, you are dependent on the money coming in.
2.Don't look at your business through rose-colored glasses.
When you see a revenue slow-down, you need to be open to the facts. This goes back to cash flow. Over time, I learned that it is much better to go to a four-day workweek for the whole company for a limited amount of time than pretend that things will get better. When sales were not meeting our forecast, we would still be overly optimistic about some possibility coming to fruition, sometimes two months too long. Meanwhile, we could have saved quite a bit of cash if we were more realistic about the situation. Instead of doing layoffs or anything more far-reaching, we would do simple things like everyone moving to a four-day workweek. We had senior leadership move to a four-day workweek as well. Then we would pay that back in the future. You have to know where the levers are. What are the KPI's and the possible levers for a response? The first 10-12 years were very bootstrapped by our own design. We had a few angel investors initially, but we have never taken private equity or outside money. We are still private after 26 years.
3.Don't put your eggs all in one basket!
It is very dangerous to rely on a few accounts. Ideally, you don't want any customer to exceed 15%. It is a different story these days with Amazon. We have had to ask our bank to keep increasing the concentration because of these times, and I think it will stay there. But, I would be cautious knowing that you have some relationship established. And you don't want to make the mistake of consigning inventory that could be returned to you.
4.You are salesperson #1!
Founders should do the first million dollars of sales themselves. I think knowing your customers, even if it is B2C, is crucial. Getting a sense of the core group, who the tribe is, and who is in your corner. The best way to understand that is to see who is buying whatever you are selling, whatever platform, and by whatever means of distribution. That means reading all reviews and being accessible for correspondence and anything else you could do. You need to be hands-on.