Butler Lumber: Epilogue
Lessons Learned
John Mullins
London Business School
© John Mullins, 2012
1
On Finding Cash for Growth
• Finding cash for growth is a central concern
for every entrepreneur
• Going hat-in-hand to a bank is one way to
find it
• Managing working capital and margins
effectively is another, perhaps better, way to
go
© John Mullins, 2012
National Entrepreneurship Network
2
The Myth About
Taking Cash Discounts
• The conventional advice: always take cash
discounts
• But for fast growing companies, you can
often grow faster by not doing so
• Potentially important when taking
advantage of a strategic window that may
soon shut
© John Mullins, 2012
National Entrepreneurship Network
3
Another Common Error
• Offering discounts or easy terms to win new
business
• Implications?
– Cuts into margins
– Lengthens your operating cash cycle
– Thus reducing your SFG rate
• A better way: think how to invest such funds
into new products or new capacity
© John Mullins, 2012
National Entrepreneurship Network
4
Another Better Way?
• Raise your margins. How?
– Strengthen your gross margin mix via selective
pricing decisions
– Buy better or smarter
– Control operating costs
• But be wary of across-the-board price
increases, which can turn off your customers
© John Mullins, 2012
National Entrepreneurship Network
5
Why Is This Better?
• Improves profitability and cash flow
• Reduces demand to a level you can satisfy
without taking on more debt (= financial
risk) or new equity (= dilution)
• But there’s a drawback…
– May open the door to competitors who will
seek to fill the unmet demand.
© John Mullins, 2012
National Entrepreneurship Network
6
Implications for
Managing Your Growing Business
• Building your sales force
• Pricing decisions
• Getting everyone on board to help you
manage cash for growth
© John Mullins ,2012
National Entrepreneurship Network
7
Implications for
Building Your Sales Force
• Salaried people increase fixed overhead,
tying up more cash over your operating
cash cycle
• Commissioned or outsourced sales people
conserve cash
• Which should you do?
© John Mullins, 2012
National Entrepreneurship Network
8
Implications for
Pricing Decisions
• It’s easy – but lazy – to set prices on a cost-plus
basis
• Some products may merit higher gross margins
than others
– Razors and razor blades
– Printers and ink cartridges priced like champagne
• Some kinds of customers may be willing to pay
more than others for slightly different versions
– Lawn mowers, toasters
© John Mullins, 2012
National Entrepreneurship Network
9
Implications for
Motivating Your Team
• It’s in everyone’s interest to create more
cash for growth. Why?
• So, let everyone see your common size and
cash-days analyses, every month
• Simple, intuitive, easy to understand
© John Mullins, 2012
National Entrepreneurship Network
10
Perhaps the Most Important
Thing about Managing Cash Well
• It gives you independence like nothing else
can
– No bankers bearing covenants
– No investors whose funds are nearing the end
of their lives
© John Mullins, 2012
National Entrepreneurship Network
11
As You Make Plans to Grow Your
Business, Remember…
• It’s not about profits
• Cash is king!
• Managing cash for growth is everyone’s job,
not your CFO’s!
© John Mullins ,2012
National Entrepreneurship Network
12
I’ll Leave You with a Challenge…
• Sit down with your controller or CFO
• Take him through the hidden cash logic and
the SFG method
• Send me an email with how much hidden
cash you free up!
© John Mullins, 2012
National Entrepreneurship Network
13
Questions?
© John Mullins ,2012
National Entrepreneurship Network
14