Friday, October 29, 2010

The wisdom of Sahlman

  1. More cash is better than less cash.
  2. Cash sooner is better than cash later.
  3. Less-risky cash is better than more-risky cash.
  4. NEVER run out of cash.

DSC00767 Stitch

Back in Cambridge for a few days, autumn settling in (above). Its the usual whirl of meetings before headed back to the Netherlands at the weekend.  I’ve pinned the future on the success of two deals, one financing a business, the other leveraging one, and both are taking longer than expected.  This puts a cash flow squeeze onto the contracted payments through my Dutch company, so I’m entering the Winter of Living Frugally.  It’s teaching a few lessons (in addition to hammering home the truth of Dr.Sahlman’s words for entrepreneurs, above):

  • The practical consequences of never selling myself short.

Conventional wisdom holds that you should either give your services away or sell them at full value: never at a discount.  When a client runs into financial squeeze, the logic is to keep billing full-rate, but be flexible on repayment.

I’ve learned to be flexible on the method (cash, stock, in-kind services) but not the timing.  Payment deferred is payment denied: invoices risk getting written off or converted at the deal’s close.  Make an arrangement and stick to the schedule.


  • A customer is a customer when you sell a service.

Reduced to its essentials, there’s not much difference between being an employee and being a consultant, contactor, or service provider.  I sell my time, abilities, network, and efforts; I am paid to meet customer specifications and expectations.

I had thought that this would be different outside the corporation, but it’s still all about satisfying the customer, which still means yielding control.  On the plus side, I can take the jobs that I want and keep what I bring in: I enjoy the creative and business freedom.  On the minus side, if my recommendations aren’t; accepted, I abandon them; if the report isn’t complete, I redo it.

There is no escape from this reality as long as I sell services to others.  The transition only comes when the business owns assets that others want.  The biggest change that I need to make in my business is to create asset-value rather than just reputation-value, creating and owning a product or process that stands independent of me.

Reaching for the cup

  • Knowing the limits of confidence and persistence.

In the beginning, I said that I would never fly this business into the ground, succumbing to the gambler’s sin of betting that the next roll will be the winner.  Instead, I’ve always believed that in sane times I should know my limit and I should know when to quit.

New businesses are built on confidence and persistence, belief in the vision and recovery after a setback.  So far, I’ve done that well.  But, as resources shrink and the finish line stays tantalizingly out of reach, I’ve begun to question the limits of both.  There’s the  conviction that holding out one more month, calling in one more favor, giving one last push will be enough; that the sunk costs justify the incremental expenditure.

It’s a seductive call, and it seems to me that this is the time that you need someone watching your back.  I’ve put a trusted and uninvolved friend into position to keep an eye on things, someone who can suggest when it’s time to let go, if I can’t see it. 

Indiana Jones photo credit

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