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Cash is King, But Long Term Cash Flow Rules
One of the single biggest challenges a laser scanning service provider–airborne, mobile, or terrestrial–faces is building long term cash flow that allows you to plan and fund your business. Many laser scanning companies have a difficult time projecting cash flow beyond a few months. The challenge is that the technology is still in the early stages of acceptance and implementation, and those early adopters typically offer short notice of project start. Yet, they almost always want immediate completion. So what develops is a fundamental gap between the income stream and project expenses. The situation is exasperated by clients who don’t like to pay within the normal 30 day window.
To properly frame this, the upfront capital investment is in the hardware and software, but the critical business expense is the human capital–employing technically capable individuals that can provide a quality product. The business model is dependent on repeat business, and will implode without a repeatable quality offering.
So, how do you invest in, and grow your business with a less than predictable cash flow?
Competition…Friend or Foe?
One strategy to launch your business is to identify elephants. An elephant is any client that is large enough to provide your business a significant sum of cash over the course of time. This is a customer whose needs will extend beyond a year or two. Typically they must either have multiple projects, or a single project that can last a very long time. Examples are endless if you think about the need for `measurement’ which is basically what we do in its purest form. Elephants might include industries like power, oil, government, ship manufacturing, and theaters. Or it could include customers like Target, US Navy, GSA, Wal-Mart, DOT’s, and Flood Control Districts.
So once your elephants are identified, how do you attack them with such a small staff?
You collaborate with your competition. You create a win/win scenario between your business and another whereby combining your collective efforts, you can chase down the elephant–together. Scary as hell isn’t it. Our whole lives we’ve been told to respect competition…and crush it. But in what is still uncharted waters for service providers, you’ll benefit more by working together on a project/client then trying to fund your business from existing cash flow. Boot-strap capital is a much slower road to growth and will stunt the development of your infrastructure.
Still Not Sure?
Let’s take a step back and break from the traditional brick/mortar business model. Where is Encyclopedia Britannica today? They’re advertising their final print edition. Why? Because Wikipedia came along as a collaborative effort by millions around the world to create as their founder puts it, "…the sum of all human knowledge." Wikipedia utilized worldwide collaboration to create the industry leading website.
How about Sony a Japanese electronics powerhouse and Ericsson the Swedish telecom company joining forces? Two large and well respected companies from different parts of the world each are recognizing the value of partnering to create a massive JV (joint venture) effort.
Or maybe you need software written and can’t really afford to do it on your own. Then try the Point Cloud Library (www.pointclouds.org) where open sourcing is providing lightning fast results that would take traditional companies months or years to match.
The point is that we are in an economy where opening yourself up to new ways of doing business, such as collaboration, will help you grow your business much faster than ever before.
Rules for Engagement
You’ll need to make sure you have addressed the following:
You must trust the leader and the team that you’re considering partnering with. Sure an NDA will help, but the relationship must develop and trust has to be in place. And the only way to gain trust is to begin offering up bits of confidential information… and expect to get the same in return.
Share a common vision and mutual goals. Make sure you both don’t just want to climb the ladder, but that it’s on the same wall.
Have mutual input and formulate a plan of attack. This will help set expectations and provide a way to measure the results. Each party must know the role they play and expectations for performance. Cloudy or undefined roles will lead to disaster.
Leave both parties an exit route. Don’t assume that just because you’re successful on one project that your partnership will work on others. Never put yourself in a `make or break’ scenario. Leave an exit for yourself and the other guy. This will help to maintain the integrity of the relationship.
Be honest. If there’s success/failure–communicate it immediately and share information. You’re in it together.
Eat Elephants and Grow
Take down an elephant or two with the help of another. The collaborative effort and coordinated attack will help your business grow faster because you’re securing long term cash flow with a large client.
Ken Smerz is the President of Precision 3d Scanning, a national laser scanning service provider specializing in the A/E/C and forensic industries. He’s also a youth football coach and an avid mediocre golfer. Ken can be reached at kens@precision3dscanning.com.
A 402Kb PDF of this article as it appeared in the magazine complete with images is available by clicking HERE