Critical Difference Between Prospecting for Customers and Prospecting for Money

And why money should never be overlooked.

Of course you need customers. You need a few for proof of concept and to show you can sell. These things are important for investors.

But don’t overlook the importance of cash. Because cash is king. Customers are queen. Or bishops maybe.

A CEO who is a potential client needs money. He’s hired three people to go out and prospect for customers. This is important. However, there is a problem if and when those orders land on his desk.

How is he going to service those orders? He needs to add more equipment. He needs to pay for that equipment. This is for a SaaS company, but the same goes for companies that are making products and need to buy raw materials. And even service companies may need to hire more employees and pay them. In a way, they are the raw materials.

I’ve worked with many CEOs in the last couple months as we grow our consulting practice. I’ve seen this problem over and over. Companies are so obsessed with customers that they forget about making their customers happy. You need cash to do that.

The last thing you want is to land an important customer/client, and upset them to the point they won’t want to do business with you anymore.

As someone who writes about cash flow, has done webinars and seminars about cash flow and is writing a book about cash flow, I am firmly in the camp of bootstrapping a startup. I’ve written about that, too. If you can bootstrap, by all means. However, it’s hard. And it takes a lot longer.

We know that around three quarters of startups rely on a founder’s capital and cash from sales; that is the definition of bootstrapping (which comes from the expression, pull yourself up by the bootstraps).

However, we also know that two-thirds of startups fail before their first decade in business. I don’t know. Maybe there’s a connection there.

My partner and I started our first business in 1988, bootstrapped it, and had a very happy ending. It is possible. But we had some unique help including a family business providing our component parts giving us 120 days accounts payable terms. That’s difficult to find out in the wild.

Customers are vitally important. Cash is more important. Why? Let’s say you get a huge order out of the starting gate because, of course, your product is the best. How are you going to finance that?
What if you have enough money to process the order, but you don’t have enough to cover your overhead expenses (rent, salary, insurance, etc.) while you wait to actually collect the money owed to you? That’s a thing.

What you need is a couple of customers to show proof of concept. After that, put together a pitch deck, and go to an investor to raise money. Then you’re off and running.

If you can get purchase orders from a reputable company, you can also raise money from a bank. Many banks (or factors) will lend money against purchase orders.

When I say raise money, it doesn’t have to be from an investor who will take a percentage of your company. It can be debt from a bank as well. You just have to pay it back. With interest, of course.
There are a lot of creative options to raise money. I explain some of them in my Medium post, “Why Cash is King and How to Get More of It.”

If you need to know how to construct a good pitch deck, send me your email at: [email protected], and I’ll reply with my two-page outline. My partners and I have raised tens of millions of dollars using it as a template.

Originally published in Data Driven Investor.