The other data I was reading Joel Spolsky's article about start-ups. In short, Joel comes to a shocking conclusion that I have stated on many occasions:
Consider, for example, the sales chart
for one of our products, Fog Creek Copilot. At first, we charged $10 a
day, and every time a customer wanted to use the service, he or she had
to whip out a credit card and type in those 16 digits or use PayPal. As
the green line on the chart indicates, we had steady but unremarkable
sales. Then, in December 2005, one of my developers built a
subscription service so that customers could sign up to be
automatically billed every month. We thought this would be a minor
convenience for some users. Turns out, we had wildly underestimated the
impact this new method of payment would have. As the red line shows,
sales took off.
In short, he is reiterating something I have said many times: Don't make it hard for your customers to give you money. A more intereresting question is why does that help beyond the additional revenue? The obvious answer is cash flow and in this light we really see the two biggest, real killers of small businesses: lack of capital and lack of cash flow.
When I speak of capital, I am referring to all money needed until the business can sustain itself based on its own revenue. The reason any average Joe cannot start a car manufacturing company is that you need a factory to build the cars and that factory, and the people employed in it, require a tremendous amount of money in order to even begin to make products. In other words, you need millions of dollars before you can make your first penny. It can take anywhere from one to ten years or more for a company to become self-substaining. Most importantly, that initial capital is used to pay bills and employees until the company is able to generate sufficient revenue on its own. Most small business owners severely underestimate the amount of capital required to get the business to the point of self-sustaining. Even though many software ventures require less capital, unless the developers are trading time for ownership, you must have sufficient capital to pay them until your website or product can generate revenue.
Most small businesses also run into problems managing cash flow. Cash flow is what they use to pay their bills and employees. The landlord nor your employees want to hear that you are waiting for your customers to pay you in order to pay them. Their bill collectors will not wait and neither should they. I also have noted that many small businesses do not keep sufficient cash on-hand to accomodate occasional contractions in business. So, being a small business with a small number of customers, if they lose a customer or two, even from no fault of their own, their whole business suffers because they have no margin for error.
Subscribe