Your Business Couch Cushions
Allow me to tell you a story about how a medium-sized business used getting paid faster to grow into a public company.
Many years ago, as I was considering the sale of my business, I reached out to Fritz Companies, one of the largest competitors in the industry. I recollect that Fritz had acquired nearly 30 of our competitors in the preceding 2 years and, if anything, my memory of that ridiculous number is conservative. While their lightning-fast growth was the envy of the industry it was also hard to understand how they had the funds, in our low-margin industry, to fuel their meteoric rise.
As our discussions with Fritz progressed, lunch was set up with Lynn Fritz. Before we could even order the food, me being a wide-eyed 32-year-old at the time, I could not help but ask Lynn how they were able to grow so fast and acquire so many businesses so quickly.
I was expecting to hear about some special marketing program or how their technology gave them such an edge. Instead, I got a lesson in how the best innovation is often not sexy and the power of digging into the boring sides of the business can create massive success.
Here was his big secret…
Lynn explained to me how he went through all of his accounts and realized how much money the company was laying out for them before getting paid (A common practice in the industry).
He then calculated how much this outlay of funds was costing the company and created a simple report for each customer that showed exactly how much their slow payments were costing the company.
Then he got on an airplane for the next 6 months.
He personally visited the CEOs of every single slow-paying client, presented them with their report and gave them the option to pay faster or start paying interest. Fortunately, most chose to pay faster.
The resulting (massive) increase in cash flow provided Fritz Companies with tens of millions of dollars that they deployed to acquire their competition. As they did, the cash flow kept growing and the acquisitions kept closing.
In 1992 Fritz Companies went public on the NASDAQ.
In January 2001, Fritz Companies was acquired by UPS for $450m.
24+ years after that lunch and this lesson still finds its way into the front of my mind more often than all the fancy business innovation and strategy stories I have heard since.
I was reminded of it again as we find ourselves in uncertain economic times where every business owner, founder and CEO needs to be looking for ways to make sure their business can survive and thrive over the next 12–24 months.
Like those sneaky coin-grabbing couch cushions in your house, there is money trapped inside your business that you cannot see unless you dig for it.
It may be that clients need to pay you faster, it may be your expenses are too high because nobody has been watching them during the boom years or maybe you are paying your vendors too quickly. Maybe it is a process that takes you 10 hours now but could be optimized it so it only takes you 4.
Maybe, and I am not minimizing the hardship caused by reducing staff, you have a lot more payroll than you need.
I have watched too many leaders lean solely on sales, marketing, increased spending or all of the above to get them through challenging times. Unfortunately, especially in industries with long sales cycles, it rarely provides the quick impact that is needed when a faster fix is required.
Instead, look inward toward the unsexy parts of your business.
Here are just a few ideas to spark some action:
Do you know how much time it takes for you to complete a project, task or the work you do for a client? Divide those hours by the total cost of labor, rent and the rest of your overhead expenses. Are you charging enough? Could you charge more or could you find enough efficiency so you get more done with less? I have done this many times for clients and, after the shock wears off, some specific new targets for costs and pricing are created.
Run a simple report that shows the average number of days it takes you to get paid from your customers AND the average number of days you are paying your bills (Including payroll). If you are paying faster than you are getting paid then flipping that will change your world.
Like Lynn Fritz, look to see which clients are treating you like their private bank. Have a face-to-face conversation and show them what it is actually costing you (A simple calculation with the current interest rate works well). They can either start paying you interest or pay you faster.
Again, not all innovation is sexy.
Go and find the money hidden in the “couch cushions” of your business.