Cash may be king, but failure to invest is likely holding you back.
One of the fundamental principles in business is to not run out of cash. It makes perfect sense, right? No cash, no lights, no payroll, no people—no business.
Sadly, a condition I see often, especially in companies with revenues under $10 million, is a tale of two mindsets with respect to cash management.
On the one hand, some companies run what amounts to a lifestyle business. The companies’ sales generate enough margin such that the owners live quite comfortably, take regular vacations, put kids through school, and eventually retire. These companies tend to do better than break even and build a bit of generational wealth. But those companies don’t grow substantially.
On the other hand, other companies operate in fear. They live in the small business eco-system, routinely leading with their socio-economic status. “We’re a service-disabled, veteran-owned company,” or “We are an 8(a) and are also located in a HUB zone,” are the most often-heard opening lines at conferences. Rather than lead with their capability, they lead with their special contracting status. The belief that this status is what makes them valuable is also what keeps them from ever getting out from under it.
My most successful small business clients aspire to grow, even if it means breaking through the cap that defines them as a small business. As such, they make bold and confident investment decisions. Their boldness regularly pays off through growth.
You’ve heard the phrase, “What got you here won’t get you there,” widely attributed to Marshall Goldsmith. I’m not sure the words are uniquely his, but the concept is spot on. Change and adaptation are fundamental to a company’s growth.
Growth always requires these three things:
- A willingness to make a change
- A readiness to be a little uncomfortable during the change
- A path you can at least imagine, if not actually see, to achieve the change
Growth nearly always requires investment, and this is where most get stuck.
In the 1970s there was a famous commercial series for Master brand padlocks. Their controversial 1974 Superbowl commercial showed that a Master padlock could withstand a round fired by a sharpshooter and wouldn’t fail. The less-than-scientific methodology was debunked over time, but not before Master solidified its position to dominate the padlock market.
Hollywood regularly shows both good guys and criminals firing guns at locks to break them open. This isn’t as easy as it looks, and apparently is rather dangerous to do at close range—ricochet is a common result and bullets and shrapnel fly haphazardly. But in the Hollywood version, the lock nearly always opens on the first shot.
Too many small business owners miss the nuance of investment versus expense when evaluating options for cash. It feels safe to keep it in the bank for a rainy day—but it’s the wrong approach.
Judicious investments in training, facilities, equipment, and expert counsel will always be part of the owner’s calculus.
Guess what? Large businesses face the same challenges. Cash management requirements don’t go away when you are no longer a small business.
You might think I’ve just described a Catch-22. You can’t grow without investment, and you have to have cashflow to make investments. That’s correct.
You generate cashflow by generating business, to include newer and bigger business. That, too, sounds easy on paper.
What’s the key to success? The key to success is the same key to the padlock you have on your stash of cash.
If you don’t invest to grow, you will not grow. Simple as that. Use your key.
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