“Some people plant seeds and some people hope for magic beans” (Anonymous). I heard someone say this over the past week and I couldn’t help but agree – and laugh. In working with entrepreneurs and small business owners this statement really does capture the essence of vision, planning and execution (or lack there of). Planting seeds is a very simple idea in concept except when you apply it to a business that is struggling or growing. Seeds need to be planted in good soil and need to be watered and fertilized before they can produce a good crop. To the extent that the wrong seeds are planted, water and fertilizer is not available or the soil was not good, the resulting crop will not only disappoint but more importantly could prove disastrous (bankruptcy).
As an example, we have worked with a company that used all of its cash to survive the last economic downturn. The benefit of surviving the downturn was that the business had to become more efficient (think seeds being planted) which enabled higher gross margins and as the market recovered they were able to capitalize on new customers that were left behind by competitors that didn’t survive. Notwithstanding the company planted new seeds in the form of cutting costs and streamlining operations, their management systems that controlled marketing, sales, operations and accounting were not updated to reflect the significant increase in new business which has placed the company at a new level of activity and opportunity. Quotes did not tie into work orders, work orders did not tie into invoicing and invoicing did not properly tie into cash planning tools. As a result, the company has borrowed funds at double digit interest rates to meet cash flow challenges on a reactionary basis instead of planning for the increased activity and proactively getting ahead of problems – or at least attempting to think of what they could be. The company does not have KPI’s (think water and fertilizer) to help it understand how everything is working together, where the problems are and their resulting crop will most likely be great top line revenue with barely acceptable bottom line results. The grasshoppers (or vultures) are eating the crop.
I should point out that this company is not unique. I could easily give an example of a business we have worked with that has had the same challenges but in addition to borrowing capital at double digit interest rates the company continues to sell equity at very regular intervals to meet the cash flow challenges. I am not suggesting that selling equity is not a good decision, but I believe it is not a good decision if you do not have a plan for producing a good crop much less understand what seeds need to be planted and how they will be watered and fertilized.
Throwing seeds on the ground is easy. Getting a hose and watering dirt is easy. Buying a bag of fertilizer and throwing it around is easy. If you do all of these things in winter they are guaranteed not to produce a crop. Being a good farmer that knows how to cultivate the dirt, choose the best seed to plant, knows the best mix of fertilizer and when to plant and water is not easy. Planning can be frustrating, identifying problems before they occur can be difficult and dealing with a bad crop can be devastating – but it is avoidable. The title of this blog was not “how to build a rocket ship” but rather how to think of your business in the context of a farmer.
Don’t hope for magic beans. Plant good seeds in good soil and have a plan for watering and fertilizing them to produce a good crop. If you don’t know how to do this or are lost in certain aspects of your business – get help. There are lots of great resources available and people (think Bridge Capital) that are able to help you and your business do more.