growth hacking

Cash Flow Crisis? 10 Ways to Kickstart Your Business

Ed: If you are in business sooner or later you are going to hit a Cash Flow Crisis. Its embarrassing and stressful but you have to take action to deal with it. This week Wardy of 3 Minute Angels shares what he did recently to solve a short term cash problem.

Can you really think through your own growth tactics objectively? This was the question I found myself asking myself last week.

Are you too close? Is this all too subjective for you? Usually people get consultants for this…

You see about a week ago I had a cash flow issue. I had more bills than income. I had over extended myself by working on my stable of startups.

There was certainly bad management on my side.

I’d also had my fair share of bad-luck events contributing to it. Including two deaths, a typhoon, two quick turn around international flights and bad man-flu.

Whatever the reason I knew I needed to liberate some cash and quickly.  Going to a sheet of paper and pen I jotted down what my massage company does already as business models.

For the sake of the story let me tell you about this business so you have a context.

I have been running 3 Minute Angels (one of the largest massage companies in Australia) for over 13 years.

3 Minute Angels had early success with pioneering a new pricing mode for casual massage. We introduced the “pay what you think it’s worth” pricing model to our customers which were typically delivered in short bursts in a casual setting in bars, airports and festivals.

This business was a lot of fun and cash based however  the hours were long and the margins low.

We then added a business to business offering for corporate wellness and reward for their staff and event massage for corporate promotions.

If you’ve worked for a big tech company  – you may have been the recipient of one of our massages in your offices, big companies such as Google and Atlassian use our team regularly.

The business to business market is better hours, better margins and now makes up the majority of work we do. It’s main weakness is fluctuating demand where month to month we see swings of up to $100k in sales.

Clients ring us,  they don’t want proactive sales for massage. In fact, they can only be attracted in and sold massage when they want to provide it to their staff.

We are an order taker in this market. Our product in corporate land has what we call low GAFF (give a f..k factor).

The business has revenues of just shy of $1 million (Ed: Thats a lot of massages) and gross profit of about 30% and ebit of 10%.

After so long running the business having a rainy day reserve for fluctuations and bad runs makes sense, but alas I’m the sort of entrepreneur that puts everything I earn to work.

So faced with only 2 things written down on a sheet of paper I challenged myself to think like a consultant and liberate my creativity on my old stalwart of a business.

3Minute Angels doing a Corporate Gig at Bondi Beach

3Minute Angels doing a Corporate Gig at Bondi Beach


Here is what I did

  • I smoked a joint
  • I went on the websites of overseas massage companies
  • I wrote a list of strengths and weaknesses of our industry
  • Repeated point 1
  • I then gave myself 3 minutes to write down 9 ideas *
  • I did that 8 more times

I went and removed duplicates and scored ideas on ease, cost. And time to test

I’ve now got 6 decent ideas including providing

  • Full body mobile massages with huge discounts for locked in regular gigs
  • Full body mobile massage quick turn around service
  • Retail massages in pop up areas of existing retailers
  • A return to pubs and clubs with an alliance with promotions going on for anti hangover pills
  • An alliance with concierges that sees our services listed with uber and other services people use in hotels
  • Expanding our airport operations beyond Virgin blue lounges


And then there’s the 60 other ideas I couldn’t do for free or in a single month. Or ones that require capital or ongoing time from my diary.

We then used the following free resources

  • Leadpages.net to create a’squeeze page’ (there are other firms like my landing pages, use what suits you)
  • I recorded a video on my laptop, uploaded to YouTube and embedded in the squeeze page template
  • I setup an exit grabber
  • and sent a well crafted email to my existing clients’


Less than a week later I am running the first test. And it seems to be ok. 2-days in and we have a$1200 sale and $3250 sale.

I’m excited instead of fearful about the business prospects and I’m back in the swing.

This was pretty easy to execute and didn’t take much time or cash to create.  It’s possible you have all the answers. It’s possible you are your own best consultant.

The real lesson here is not that consultants are unnecessary for objectivity – or maybe that’s too subjective for me to call – what do you think?

Check out our new test landing pages here – you may even like a massage for you and your team.

* the process of rapidly developing and assessing ideas is derived from blitz thinking which comes from Australia’s very own Dr Ken Hudson

Growthhacking – How to turn a Small Services Business into a High Growth Business

I used to own a services business that managed to get past noise level, I talk to a lot of people about startups, I mentor quite a few young entrepreneurs and I often get asked by entrepreneurs how they can grow past 1-2 people and turn their business into a growth business.

Jack and Ryan sent me this pitch and questions about their business.

While we normally talk about high growth tech businesses on Startup88, just bear with me while we look at how they could turn this from a starter business into a high growth tech driven business.

 

Startup Name *J&R Mobile Auto Detailing
What problem are you solving?Hi my name is Ryan and four years ago my friend and i decided to start our own mobile detailing business. We started this our sophomore year of high school and were just doing this during the summer to make some money which we still are. Im currently at Merrimack college student and my friend (co owner) goes to trinity college. our problem is that we cant detail while we are at school but we would like to get one or two other people to detail the cars while we worry about the supplies and the money side of it while we are at school.
What is your solution?to hire people and get some money into this business so it can become bigger.
Why is this a great opportunity?because there is no other competition that i have seen nor our customers that have a we come to you detail service. So far we have not tried that hard to get business other than from business cards and word of mouth. We have both been very surprised at how much business we have got doing this and have had multiple people say this is definitely a business that could spread.
Target Marketpeople who work full time and don’t want to spend the time to take two people to a detail place and either leave their car overnight which most people need everyday. cars are becoming such a big part of our life that i feel like mobile detailing will just become more and more popular
How will you make money?we charge 120 for sedans and 140 for suv’s and trucks. we use less than 5 dollars worth of product giving us pretty much all profit as of now.
Founders NamesRyan Boretti, Jack Setian
What type of funding has the company receivedBootstrapped/self funded

Hi Ryan and Jack

I am going to make a few suggestions, but firstly congratulations, sounds like you have a successful small business, this is fantastic and I love the fact you guys have managed to do this during college.

The big question is, can it be more than a small business? You live in the land of opportunity. Cars are a big business and the auto business highly fragmented.

Could you turn it into a fast growth business that grows to $50-100m revenue pa?

From the look of your Facebook page my guess is you guys are probably doing $50-200k pa working part time which is a great way to put yourself through college.

The good news is it sounds like you are at full capacity. The bad news is it sounds like you are at full capacity.

The Wall

You have hit the same wall that every small services business hits sooner or later if they are doing a good job.

If its any consolation you are in the same position that most small businesses find themselves in, truth is most don’t manage to outgrow this stage and either expire or retire exhausted.

I mentor a young local guy who is one of the most industrious 20 yr olds I have ever met and because he is good and he works 7 days a week, he gets a lot of business.

He is also working around his University schedule and he is constantly on the edge of needing to take more staff on and invest in heavy duty equipment to mechanise his business. He now can’t take on any more business and is backed up for months. Great situation but a massively wasted opportunity.

Sounds like you are in a similar position.

Service businesses always run into the same problems, the better they get at their the work and lead generation, the more overwhelmed they get with their business.

You see with a services business, you can only grow as fast as you can

  • Generate more leads
  • Close them
  • Recruit more team members to provide the service
  • Generate cash to pay your bills and staff

These are the key determinate’s of how fast you can grow.

Unfortunately you need to be pretty balanced on all of them or the wheels fall off.

Generate More Leads

Often small businesses go through massive peaks and troughs of work where one moment they are drowning in work and the next moment they have nothing to do.

Often they get so busy they stop marketing or creating new opportunities, but once that work is done, they have to start generating leads again.

You must have a monthly program that consistently generates leads. I used to call this my lead machine, put a bit of money in the top, turn the handle and qualified leads come out the other side.

Over the years I tried more than 25 different forms of marketing and mediums. And I constantly experimented with different messages and options until I found a few methods that provided a consistent lead flow every day.

In my opinion its lot easier now when you can launch ads on Google, Facebook with numbers of messages and pick a winner in 24 hrs but you must keep doing it and you must keep refining and testing the message and the process of converting visitors to new business.

Close the Leads

Most small businesses don’t think much about sales, many wouldn’t consider paying money to take a course, but I was lucky in that my old business partner and I both came from a strong sales background and not only did we have top level sales training in our previous companies but we both continued this for us and our team when we started our own company.

If you look at any major company they will have top sales training for their sales teams. Doesn’t your team and business deserve the same?

This also relates to creating web based systems that close the deals for you. Online Booking Systems, Apps to book a service, pickup and dropoff, 2hr express turn around, anything to make it easy for the customer to buy your product.

Most businesses make it too hard to buy from them. Their offers are hard to understand. Everything feels like a custom job. Pricing is not clear or is somehow hidden or hard to calculate.

Customers really don’t like this.

You can’t scale a business when you have to customise everything.

When I started my first business, we sold complex IT equipment, Servers, Routers also sorts of high end equipment, it originally started as products business and evolved into a services business and then evolved into a sort of scalable services business.

I say sort of because I didn’t ever feel we got the growth right, it grew quickly but not hypergrowth, I was still looking for a better way to do it when I sold it.

When we first started selling Cisco Routers our sales guys would take 1/2 a day to visit a customer, see what their needs were and write up a quote and that was just to sell the deal. Pricing and quote configuration was complex.

When it came to implementation, it would take a day to create the configuration and take it out to the customer and install it.

I figured that we needed to re-engineer this or we would never be able to handle more than a few a week.

So after a year or so of this and reading one of the best books on the problem called the E-Myth, decided to build a process to streamline this and created a comprehensive but easy to fill out form.

The customer would download this or have it emailed to them, they would fill out basic details and then fax it back (keep in mind this was nearly 15 years ago, we did have one of the first e-commerce sites in Australia but we kept getting hit by credit card fraud so we had to close it down before it killed us) so an easy to read and pay form did the trick.

This allowed the engineers to configure most of the router information and a quick call to the customer and we could ship it out on a courier, the plugs were all color coded and when it arrived they plugged red cable into red port, yellow into yellow and blue into blue and it worked.

One of the good things I did was stick to a Set Price for all our configurations rather than charge by the hour, engineers told me we couldn’t do it as it was too complex, the sales guys told me that we would loose money on deals, I countered that we would price it so that we made money on most deals and occasionally we might lose on a deal but this would be more than offset by the number of extra deals we had by making it easy to buy.

One thing they didn’t know about was a concept called the Experience Curve, basically this concept describes a power law where as a company or person gets more experience making the same item, the costs of producing the item decrease over time, in some cases substantially.

I knew that if we charged the same for configuration of the item and then get better both from experience and from process our profits for that would significantly increase.

Originally this was a day long affair to configure and send back to back to the customer.

We managed to get it down to just under an hour but at the same revenue.

The Downside of a High Growth Services Business – More Business =  More Staff

The faster you grow your services business, the more people you need, the greater costs AND here is the kicker, the harder it gets to deliver and control the quality of the work you are performing.

Services business = services team

Strong growth = lots of hiring for services teams.

The secret to a lot of new high growth web businesses is how they have managed to scale their growth by creating software systems that provide the service rather than humans.

To grow all they need to add is more computing power (obviously not that simple).

A great example is Whatsapp (recently purchased by Facebook) who had 55 staff and 450 million users.

Essentially you have to transition from being a sole trader where you generate the new business, you do the work, manage the quality and take the cash, to a business that has process and systems that delivers the work when you have more business than the founders can do themselves personally.

If you can transition to a situation where you have a website/app that manages, booking and scheduling customers and allocating staff to jobs, managing payments and ensuring quality then this is a business that could potentially scale a lot faster than two guys delivering car detailing services.

If you can work out how to harness the power of other car detailers or people who want to work in your city + dozens of other cities, you could have a growth business on your hands.

There are a few variations you can consider, essentially you are trying to find or evolve to another business with a business model that is more scalable ie one where your employee count doesn’t grow at the same rate as your revenue ie you don’t need to hire more people when you take on more business.

Booking and Delivering Services using other Teams

I think this is your biggest opportunity. To make this easier to understand I am going to use the current poster child for this sort of disruption, Uber.

Uber now has a $10 billion valuation but technically doesn’t provide any black cars, their drivers own the cars, and provide the service.

UberLux

They have solved a very difficult problem, how to give customers a fantastic service by coordinating thousands of cars (they don’t own) and thousands of drivers (they don’t employ) to turn up on a moments notice with clean luxury cars, lower the cost of the fares and turn this into a really slick customer service experience.

This is not a trivial exercise.

The industry they compete in is Government licensed, provides crap service and employees mostly terrible drivers who seem to lack basic hygiene and provide cars in varying states of repair and cleanliness. You rarely hear someone say that was a great taxi ride. It almost doesn’t happen. But you will hear complaints all day about taxis and their drivers.

By using smart software (effectively logistics software), smart phones and GPS and a slick payments system, Uber has managed to organise the efficient delivery of Black Cars to customers in a way which is so superior to the existing town car and taxi service that they are completely reshaping the taxi industry.

Uber App

Uber App

They have done two things really well.

  • They have recruited drivers and cars en-masse and managed to get them to act line one company
  • They have aggregated customers across a whole country and now parts of the world and offered them the slickest service in this industry

Effectively this is a double-sided market, you can’t win unless you have both sides of the market in large numbers. If there are no drivers, your users wont use it, if there are no users you wont have any drivers.

Your Opportunity

In your case the auto industry is extremely fragmented, dominated by car dealers and smaller repair shops with a few service chains thrown in. I don’t have much experience with the industry in US, but I believe its similar to Australia, generally its a fend for yourself situation.

My wife and I cannot function without two cars, we live out of town and due to our busy schedule they get used 7 days a week, booking it in for a service or any sort of work is a major pain as nothing is convenient especially where it needs to stay overnight.

Getting to the service depot, (usually located in an area which is not close to your house or work or public transport) is a pain, different cities will have different experiences but generally workshops are more likely to be in an industrial area not in a residential area.

This is a real pain and I avoid it wherever possible and will put up with minor inconveniences and problems with the car in order to avoid having to book a car into the shop.

I don’ think I am alone.

You need to work out how to offer a car detailing service that is faster, cheaper and easier for the customer than existing alternatives

So here are some specific examples of how you could grow your business.

  • You need software to make this work. Specifically a booking and scheduling web or mobile app that allows users to book a job and to allocate the job to your team members
  • You need to learn about A/B testing (good articles here in the Growth Hacking section) and continuously run experiments to work out the best way to close new business with your online booking app
  • Keep marketing and start recruiting other teams to clean cars, effectively selling them your leads
  • Develop a process which produces a fantastically clean car every time
  • Teach your new recruits to use this process and maintain a quality process to ensure they stick to the process (ie checklists, reports, photos etc)
  • Offer a concierge service where your vehicle is picked up, driven to a depot and cleaned properly and returned in a few hours
  • Police check your team members and allow users to rate them so your clients can feel safe handing their vehicle over
  • Make them dress in nice clean overalls (you could dress them all in black or green or red, something that stands out)
  • They bring a seat cover and foot covers so you they don’t dirty the cars
  • Work out how to use this capability to deliver the work to the customer at <$100
  • You should be able to get the guys to work for you for $50, they are being handed work, they dont have the costs of marketing and if you do your job right they don’t have the downtime either.
  • You have to convince the clients its going to be a predictable, clean, awesome experience for them, cheaper than their existing options

None of this is easy, but it is achievable.

Once you have this nailed for one part of a city got your processes right and worked out how to employ great team members and get them to follow processes, you could expand it into other parts of your city and end up with 4-8 cells per city.

These cells could also do set price service work (ie 10,000 mile book service) and maintenance work after you get the business model working well.

If you could manage to dominate a city you could work out how roll it out around the country.

If you want an example of someone who has done this in an offline business, check out 1800 Got Junk and its founder Brian Scudamore,  Inc.com published a great story on their success scaling essentially a rubbish removal business to hundreds of millions of $ turnover a year.

Any of my readers got any suggestions?

Photo by MSVG

The Physics of Startup financings, or why you can’t raise a Series A

Photo by EWFTT

There is a fundamental paradox in the startup world: A lot more founders try to raise money than successfully do. But for those that do, they raise on incredibly friendly valuation terms relative to other areas of the business world. The reason is growth and it’s useful to apply the metaphors of physics to understand why.
For those tl;dr read Paul Graham’s essay on growth.

One of the most unanswerable questions I get as investor is “what do my metrics need to be to raise a series A”. I can give a guide on numbers but the reality is that the static one dimensional numbers ($100k MRR, 1m MAU or whatever the most important metric for the business is) are only half the story.

I’ll use the three simple concepts of physics – distance, velocity and acceleration – and use a SaaS business and monthly recurring revenue (MRR) to explain why.

A common piece of advice, like I said earlier, is that you need $100k MRR to raise a Series A ($5-10m) in today’s market. But the problem with that simple answer is that it’s not about the $100k figure (the distance in this analogy) nor even about how quickly MRR is growing (velocity), it’s about how quickly the change in MRR is growing (acceleration).

Stay with me. If you have a startup who grows to $100k MRR by adding $2k MRR each month for 50 months (4+ years), you are unlikely to be able to raise a Series A. If the $2k MRR you are adding doesn’t itself growing ever bigger (acceleration), the business is not a great candidate for venture financing.

On the other end of the scale, backing out a few numbers, we can see ZenPayroll skipped right past the series A and raised $20m from Andreessen Horowitz and General Catalyst at the time they had roughly $60k MRR (take the $400m payroll vanity metric, which would translate into roughly 8,000 employees or 1,000 businesses, who would pay roughly $60,000 a month according to their pricing page). You can bet that the revenue would have grown incredibly quickly, the change in MRR (acceleration) was off the charts and they had really happy customers with incredibly small churn rates.

That last part is incredibly important. There have been plenty of mobile games companies with short engagement curves, ad networks that were artificially inflating their growth by doing uneconomic partnership deals and local deals companies growing revenue at the expense of their customers viability.

So the first step investors tackle is evaluating the foundation of the building (how engaged and happy are the customers, how often do they use the product, how rarely do they unsubscribe from it etc.) and then they bet on the law of compounding growth (Warren Buffett attributes the lack of appreciation of compound growth as one of three reasons for his wealth) and hang on for a long period of time.

The rate of growth really matters a lot. 40% compounded over 10 time periods is 29X from where you started, compared to the 6x that 20% compounded over the same period is. Acceleration let’s you keep that rate of growth.

And it’s all about the acceleration not the distance.

 

 

Niki Scevak - Blackbird & Startmate

Niki Scevak – Blackbird & Startmate

Niki Scevak is a Managing Director of Blackbird Ventures. Before Blackbird Ventures, he founded Startmate, one of Australia’s pre-eminent incubators. Startmate is a mentor-driven seed fund based in Sydney that has invested in 21 startups, including Grabble which sold to Walmart Labs.

Prior to that, Niki founded Homethinking, a US-based online real estate site which helps home owners choose a selling real estate agent by ranking agents on their sales history and customer reviews.

He was awarded a cooperative scholarship to study Business Information Technology at the University of New South Wales, graduating with distinction.

 

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