Cash Doesn’t Equal Customers, Part 2

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I’ve coached a wide variety of businesses, and it’s not uncommon for entrepreneurs to reach out to me directly when they need help. In my current Kauffman Foundation Entrepreneur-in-Residence role, I’m often contacted by companies looking at the possibility of bringing in some form of outside funding. One day, out of the blue, I was contacted on LinkedIn by a small educational technology company in my home region of Western North Carolina.

After talking with the founders, a husband-and-wife team, I realized the company had good potential for growth. They have great products, they had done their homework, good traction, and they were both dedicated to making their company succeed. But everything wasn’t perfect. They wanted to grow the company, and they needed money to pay for that growth.

As they told me their story, it became clear to me that a lack of cash wasn’t the problem. They wanted money in order buy things that would make it easier for them to get more customers. What they really needed was better sales performance.

So I asked them, “Why can’t you just make more sales right now?”

Not surprisingly, neither of them knew much about selling. They were intimidated by the idea of professionalizing their sales, and didn’t have a clear idea where to start. As a result, finding outside investment actually seemed easier to them than learning how to sell. Their knowledge gap was the problem, not the lack of cash.

At their company’s stage of development, trying to raise venture capital was the wrong move. Even if someone came along with a bunch of money to invest, then what? They would still have the same fundamental problem of not being able to generate sustainable sales.

Until they solved the sales problem, they would simply be burning through that investment money, and have nothing to show for it. And even if they had found an investor or secured a loan, it would have been costly. They would have either had to give up a portion of their business, or repay a loan at interest.

The more likely scenario is even worse: They would spent a lot of time, money and energy looking for investors, only to come up empty handed.

A company that doesn’t have solid traction and a clear path to sustained customer growth isn’t as attractive to investors as a company that has worked out all the kinks in their sales process. Most investors aren’t just looking for a great product or business idea, they are looking for traction. There’s no better indication of traction than having a growing customer base.

As a long-time evangelist for professionalized sales processes, it was pretty easy for me to make the case that this company needed to focus on getting more customers. Why give up a share of their business, or take on debt from a lender? Isn’t it easier to learn how to sell?

That’s exactly what they did. Over a period of just a few months, we were able to create a strong and repeatable foundation for accelerating their sales. By professionalizing their sales efforts, we were quickly able to boost performance and create a more predictable cash flow. Not only did this take some of the immediate stress off the company, but it also created a platform to support the future growth of the business. Most importantly, the business is now more attractive to prospective investors and more valuable to boot.

In the long term, having professionalized sales process in place also reduced the future need for cash from outside sources. They now have the tools to bring in new customers, and those sales are being used to fund their growth. Now when I talk to them about bringing capital into their business, they usually say “We’re not sure we need it.”

An an entrepreneur, that’s a great place to be.