Growth
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liquidity in other ways, too.
Jaffe suggests cajoling retailers
into paying for orders up
front at a discount—instead
of paying you when they sell
your product—or creating a
production partnership with
a manufacturer. “You could
even cut a deal,” he says, “under
which a supplier only gets paid
once you’ve been paid” by your
retailers or customers.
Why would your partners do
any of this? “It is all about how
much confidence these other
parties have in your product,”
Jaffe says. “If you have a fantas-
tic product, retailers will want
it. Their self-interest will chime
with yours.”
Matt Jung, president of the
New York–based seed accel-
erator TrendSeeder, points to
someone who clearly worked
these angles to her advantage:
Sarah Kauss, who turned S’well,
a reusable water bottle brand,
into a company with annual
revenues of $100 million after
just seven years. “Kauss created
a high-quality product, found
a way of making it cheaply in
China, and then sold it at a very
good margin,” says Jung. And
the more bottles she bought, the
better her relationship became
with her supplier, which gave
her leverage to negotiate better
terms as needed.
It’s about making sure every
dollar you spend contributes
to becoming profitable. That,
says Jaffe, should save you from
trouble later. “Nothing is more
exhilarating than growing
a successful business from
scratch,” he says. “You just have
to remember that everything
takes far longer than you
expect—and costs much more.”
S
o you think you’re
ready to scale. The
foundations of your
business are solid,
revenues are up,
and word is getting
around. Now it’s
time to grow your
team, increase your marketing,
and maybe even move to a
bigger space. Right?
Not necessarily. Scaling isn’t
just about increasing revenues—
but increasing revenuesexpo-
nentially,while keeping costs
associated with the increased
revenue nominal. It seems obvi-
ous. But neglecting this fact has
sunk countless founders. They
overspend on marketing without
having proved their product;
they bloat their staffs without
knowing how those hires will
boost revenue; they buy too
much inventory. And they run
out of money.
So, what’s the best plan for a
startup with access to less than
$500,000? Don’t burn cash the
way venture-backed startups
do, says Richard Jaffe, manag-
ing director at boutique invest-
ment bank Avalon Net Worth.
Instead, draw up a growth plan
and fund it from inside your
own business. That may require
several different measures.
“First up, before you’ve
maxed out your 10 credit cards
and used your house and car as
collateral for a bank loan, you
need to be looking for money
anywhere you can find it, like
factoring,” he says. That’s when
a bank or a specialist finance
company pays you instantly for
invoices you’ve sent out, and
which you expect to be paid in
60 or 90 days. He’s seen start-
ups get 70 cents on the dollar;
others have gotten 99 cents.
To find the right one for you,
Jaffe recommends checking out
institutions that advertise in
your industry’s trade maga-
zines, so they’re familiar with
your market.
Some startups may need
to also get some asset-based
loans, using inventory as
collateral. Your lender may
realize that, say, your 35 tons of
cocoa is valuable, but it will be
even more valuable as bars of
chocolate. They lend you money
against the raw materials, you
use that to fund production,
and then you use the proceeds
from the finished product to
pay off the loan and then some.
Depending on your busi-
ness, you can optimize your
The Cash Flow Conundrum
To grow, you’ve got to spend. But where does the money come from?
by B O Y D F A R R O WJanuary-February 2018 / ENTREPRENEUR.COM / 27