To be relevant and successful in our post-COVID world we must reframe how we evaluate many aspects of our business and have the guts to do things differently.
This disruption provides us with the opportunity to revisit the routines and practices that made up normal business life – many of which made us comfortable, a dangerous place for any business as it has the potential to lead to a mindset of complacency.
A practical way to break out of this comfort zone is to ‘start thinking like a start-up’. No, I’m not suggesting you grow a beard and move to Silicon Valley, rather have an honest look at all the parts that make up your business – what works, what doesn’t, why, what could be better, how could it be better and what might we do differently?
But before reviewing your business model, operations, processes, and people it is essential to review your businesses ‘cash engine’. The reason I suggest you start here is that your cash position will impact the decisions you make as you plan for the remainder of the shutdown period and beyond.
Here are 5 commonly used start-up terms that you should now be using in your business:
Kitty … How much have you got in the kitty? [cash now or cash available]
What amount can you get your hands on right now? Not if Debtor X happens to pay next week but right now available to use in the business – whether that be already in the bank, already committed by a shareholder, or available to access should you need it.
MRR … What’s your MRR? [Monthly Recurring Revenue]
Often in business, we talk about annual recurring revenue but now we need to get more micro to know what we can expect into the bank account each month or even each week if that’s more relevant to your business.
Burn Rate … What’s your cash burn rate?
If you are now in a position of spending more than you are earning each month, you need to start thinking differently. It’s like another way to look at your breakeven point when you know you are not going to reach breakeven each month. Once you know your burn rate you can then focus on what you may need to do to reduce it.
Runway … How long is your cash runway? [Runway = Kitty / Burn Rate]
How long will the kitty last given your burn rate? Understanding your cash runway gives you insight into your profitability and allows you to monitor overspending. If you see your runway getting shorter then you need to take corrective action by cutting spending or generating revenue sooner rather than later.
Bootstrapping … It might be time to bootstrap for a while.
When things are tight you might need to just be that bit tighter you’re your expenditure. Maybe you will actually need to tip in some more of your own money or do more yourself until you build back to a self-sustaining level. This is commonplace for many start-ups and requires resourcefulness and creativity.
Thinking like a start-up again might well be uncomfortable. Be honest and don’t kid yourself about your starting cash position, otherwise, any plans you make will be worthless. Yes, it can be confronting but better you control the process than risk someone else dictating outcomes to you down the track.
You may need to have some hard discussions with customers, suppliers, and your team. Be open and transparent and communicate as regularly as needed. Understand your numbers and keep your accounting up to date so that you know what’s going on in real-time.
If you would like to know more about how you can implement a start-up mindset or just don’t know where to start, reach out to us at 1300BDEPOT or email@example.com or directly contact one of our team members.