5 Ways Company Culture Can Turn Your Start-Up Cash Flow Positive
BY Peter Cohan
How can culture impact your business? Just check it out for yourself.
In the last year, have you lost 15 percent of your people? Has your start-up been struggling to stop the loss of big customers and stretching to bring on new ones? If these things are happening in your start-up then you may have an opportunity to boost its cash flow by creating the right culture.
Culture is typically defined as a list of your start-up’s most cherished values and a set of specific practices that give meaning to those values.
As I wrote in my book, Value Leadership, you can’t just publish a nice-sounding set of values for your annual report and expect to have a culture. The right culture lies at the intersection of sets of values-- what’s important to you and what’s important to winning new customers.
Need an example? Axcient, a service that lets small business resume operations after a fire or flood, has the right culture. Axcient’s CEO, Justin Moore views culture as a critical element to creating an organization with highly talented and productive people.
Axcient’s five values are getting results, integrity, teamwork, building inspired products, and putting partners and customers first. Moore uses the five values to hire, promote, and “manage people out of the company.”
The right culture can enhance your start-up’s profit model. Culture boosts your start-up’s chance to generate more cash -- total number of units of your product multiplied by the price per unit --than it pays out -- your start-up’s cost of production, salaries, and other fixed costs like rent, insurance, and so on.
And there are five ways that the right culture can help your start-up generate positive cash flow.
1. Increase unit sales. If you want more people to buy your company’s product, you need product developers who can bridge the gap between your customer’s needs and the technology that your start-up develops.
If your start-up hires people who buy into, say, Axcient’s values of teamwork, building inspired products, and putting customers first; they are more likely to build products that customers want to buy. And that means higher units sales.
2. Raise prices. Often start-ups use a freemium strategy--giving a basic product to customers at no charge but requiring them to pay for a more fully-featured version.
To get customers to pay more than the competition for your fully-featured product, you must deliver a product with features and service quality for which customers pay a price premium.
And your start-up’s culture can give you that pricing edge. After all, if you hire people who want to deliver customers a competitively superior product and create an environment that encourages your people to deliver, your start-up is likelier to persuade customers to pay more.
3. Enhance customer loyalty. While selling more products at a higher price will clearly boost your start-up’s cash inflow, so will enhancing customer loyalty. Customers who keep buying your product over a long time period are more valuable than ones who get fed up, fire you, and need to be replaced with new customers.
If your company has the right values, hires people who embody them, and rewards the ones who apply these values in dealing with customers, then your start-up will exceed customer’s expectations and keep those customers loyal.
4. Boost productivity. If your people share your start-up’s mission, they will work long hours to realize its goals.
And, as Moore found in his hiring process, they will be willing to do all that for salaries that are below what they would get paid if they were working for a big company.
This means that your people will produce more of value for each dollar of salary your start-ups pays than competitors--cutting down on cash outflow.
5. Reduce turnover. Just as losing customers opens up an unnecessary leak in a start-up’s cash pipeline, so does employee turnover. After all, hiring the wrong person creates discord in your start-up that slashes productivity--then you have to fire the person and hire a replacement.
If your start-up has the right culture, it will make fewer hiring mistakes, have more loyal employees, less turnover and thus lower self-imposed leaks in its cash pipeline.
Strategy consultant, start-up investor, teacher, corporate speaker, pundit, and author PETER COHAN has invested in six start-ups, three of which were sold for a total of $2 billion. Before founding Peter S. Cohan & Associates in 1994, he worked with HBS strategy guru Michael Porter.