You Won’t Get It Unless You’ve Thought About Missing Payroll

Cash is like that foot injury from years of ballet. We feel it in every step. We feel it every day and at least once a day it flares up. It clouds our judgment to the point it can be debilitating. There are many days when we say to ourselves:

Are we going to make it?
How long can we go on like this?
When is my savings going to run out?
Are we going to make payroll?
How can we think about strategy when we can’t pay the bills?
Are we ever going to have the money it takes to bring this to life?

Unless you’ve been there, and been there with your money, it’s hard to imagine the feeling. One of the reasons entrepreneurs get frustrated with people trying to give them advice is, if you haven’t had the experience of what it feels like to be on the brink, it’s difficult to imagine.

There were about ten times during the history of IncentOne that I wondered whether we would make payroll. I remember one instance when one of our healthcare customers owed us $700,000 and the thought crossed my mind to drive to Connecticut to collect the money because we were desperate. Think of how ridiculous that would have been—me walking into a national health plan like it was a local check loan operation and saying—“Hi would you mind cutting me a check for $700,000”? Instead, we used a timesheet software from Deputy to monitor each minute someone had worked just so we could monitor our spending and make sure we had enough to pay them.

When we don’t have cash, it is difficult to make good decisions, and even more difficult to make strategic decisions. When cash is the central driving factor, we make inappropriate decisions such as not paying dedicated people, pushing vendors to the brink and creating imbalances in relationships. Our judgment is constantly clouded by what to do tomorrow to survive. This often goes too far:

Randy and I were looking for office space near New York City in New Jersey. The least expensive spot we saw would have been generously described as a basement. I was excited about the space because it was inexpensive and gave us what we needed. All I could think about was cash. Fortunately, Randy talked me out of it because he said if we worked in that dungeon, we would develop lung disease and that would cut into our productivity.

He was right, but all I could see was how were we going to pay for it. There are many bad decisions I made because we didn’t set up the business with the right amount of capital. Time after time I would hire people that were less qualified than what I needed for a business of our complexity. Spending another $25,000 per year for an employee seemed like a fortune at the time, but not doing it was one of the biggest mistakes I made. The lack of judgment that comes from a lack of cash can be debilitating.

Every day great ideas come across your desk. The idea might be carefully researched and presented with thoughtful analysis, but as soon as that idea requires cash, your mind immediately shuts down. It ignores all the facts that were so persuasively just presented and thinks about nothing else except, “how are we going to pay for that?” This is the case even when we know the idea is the right one, or the best path to follow. When all we can think about is whether two sales people can share a hotel room at the trade show when we should be thinking about our three year business goals, we have a problem. To the entrepreneur who left a well-paying job to pursue their vision, and now has no salary or health insurance and only $8,000 left in the company bank account—half of which is already spoken for—making strategic decisions for the future instead of today’s cash balance seems absurd.

People that run successful businesses understand that the answer to good strategy is not, “we don’t have the cash”, it is asking the question, “does the business have enough money to take advantage of the strategic opportunities that exist in the marketplace?” Most of entrepreneurs just think about the cash we have in the bank today.

The lack of cash most entrepreneurs face does have a silver lining. It makes you a good negotiator. After all, you have few options:

The dot com world was all the rage. Companies in Silicon Valley and all over the country were popping up with crazy valuations on a daily basis. One of those companies, Netcentives, was not going after the consumer like most dot coms of the day. They were going to provide an Internet-based platform to run the big loyalty programs in the country. They approached us about being their gift card reward partner. It was good fit because we had no interest in the loyalty market. Netcentives started running some of the largest loyalty programs in the country like programs for airlines, credit card companies and banks. They had garnered a huge valuation and hired thousands of employees. Individuals in their programs earned lots of gift cards and as their reward partner we would ship gift cards directly to the individuals. They were doing close to one million dollars in gift cards per month. As a result, at any time they might owe us north of $500,000, a huge amount for a company like ours.

Like many other dot coms, their day of reckoning came. They had grown to three thousand employees and the press release came out that they were laying off a third of their staff. I got a call from their CFO assuring us that this was merely a “cost correction” and that it would result in a more rational cost structure. This is generally finance speak for “the shit is hitting the fan and we can’t cut staff quick enough.” I thanked him for the call, and candidly communicated that while I understood he was calling to reassure us, we had to interpret the information that they were having financial trouble. I communicated that their outstanding balance would be immediately due and until we received payment, we would suspend shipping gift cards. He said, “I don’t control the accounts payable department.” I pushed back and said “I don’t ship the gift cards, but I can get someone who does to stop shipping them.”

Part of this was prudent judgment on our part. Part of it was if they defaulted, it would be a huge blow to our cash flow. Lack of cash makes you bold. Without cash you don’t have options.

“More money, more problems” was an incredible insight from Notorious BIG, but anybody who believes that has not stared at their computer on a Saturday night and realized there’s a good chance you’re not going to make payroll next Friday. Sure, when there’s money in the bank, the issues do grow. More hands in the pot. Dealing with investors and private equity. Employees want more salary. Even so, that does not compare with not being able to buy health insurance or a cup of coffee. More money, more problems is bullshit.

The lack of adequate cash is one of the most debilitating and stressful parts of being an entrepreneur. When we need to worry about whether your car can drive, it is hard to determine the most efficient driving route. Recognizing the impact this has on you does not put cash in the bank today, but it certainly allows you to think more clearly about your decisions. Thoughts like, “how are we going to pay for this?” can be coupled with_, “if we did have unlimited cash, would this be a priority or a good idea?” In either case, recognizing the impact that cash, or the lack thereof, can have, is an important step to changing your perspective.