Being a startup founder is a challenge and the daily existence of being a founder is such that most are unprepared for the realities of it. I write about some of the principles of being a Founder in my book, The Founder’s Manual.
Running a services firm is much like the daily existence of a startup, except services firms can be viable sooner and longer than most startups. The viability part is good. The daily startup existence not so much.
The day in and day out existence of most services firms being similar to startups is because of the fragility in both. The leaders of services firms and startups go into each day with an expectation of how the day is going to go, but knowing at least some significant and unexpected things are going to happen which change the makeup of the day. Services firms and startups have fragility that requires flexibility. I write about convicted flexibility in The Founder’s Manual and it is just as applicable to most services firms as it for startups.
Services firms have to react and adjust to a myriad of issues every day with some being in areas a services firm can expect but still have to figure out how to handle. Here are a couple of key areas that services firms can expect daily issues that require flexibility of approach man quick decision making:
- Sales — A deal or two is supposed to be closing today that a firm has included in their financial and operational forecasts, but the signed documents aren’t back and the prospects aren’t communicating about the status of signing. The firm needs the sales to close to be in a good cash position in the coming months. If the sales don’t close the firm will have a number of team members who are unbillable and therefore not generating any revenue or profit. Unlike a product company who’s team members aren’t the direct generators of revenue and profit, sales not closing as expected for a services firm is a big deal and could be a major problem. The majority of a services firm’s team members should and need to be billable for a services firm to be successful so sales not closing as expected has major ripple effects on a firm. When projected sales don’t close as anticipated a services firm might have to curtail hiring immediately and worse, consider trimming the existing team. Since the team is the product for services firms decisions not to hire or to reduce team size have massive downstream impact but without expected sales the short-term financial pain can be too severe for a firm to bear without making team changes.
- Cash flow — A deal not closing as expected is a major hit to future cash flow that is of concern for any services firm, but of even more immediate concern is a client not paying their bill on time. Services firms operate as banks for their clients as I write about in my book, Sell Naked: And Other Advice for Growing and Managing Services Firms, which services firms can plan for, but when a client doesn’t pay on time it can put a services firm in a untenable cash flow position. A late paying client causes services firms immense pain that goes way beyond the obvious. Every day a client is late paying a services firm costs the services firm more money because they have likely had to finance the delay in payment through a dip into a firm’s reserves otherwise earning them less interest, a dip into a line of credit with interest on top of the borrowed money, or use of money that was targeted for investment in marketing or additional team member salaries that could cost a firm a lot of future opportunity it was counting on to grow. A client not paying when they are supposed to is a major issue for services firms to deal with on a daily basis. A firm often doesn’t know which clients aren’t going to pay on time on any given day, but they know at least some aren’t. Clients not paying or being delayed in their payments also damages the relationship between a firm and the clients. The trust gets broken in a way that can’t entirely get repaired. That’s how damaging a client not paying on time for services firms is.
- Engagements — Client engagements are fluid and dynamic with ups and downs through the the life of the engagement. Sometimes a services firm can anticipate the ups and downs, but not always. Services firms anticipate there will be changes to an engagement but firms don’t often know when these changes will be required. Client engagements can expand, shrink, pause, or stop with very little notice and with any significant change to the engagement having a massive impact on a firm’s operation and finances. Services firms operate every day knowing there will changes to the their work with clients that day. Firms just don’t know which clients and what the change will be. It is not easy to run a predictable and consistent operation on top of such changing dynamics. At least product companies get to work a roadmap for the product. Services firms get to rework their map every day. Startups who are in the process of creating and validating their product with customers will often pivot the product and the work based on what they are learning from customers. The pivots can come quickly and often especially early in the development of a product. And they should. Early product creation and validation for a startup is much like the client existence of a services firm. Neither knows what a new day will bring, except that it is going to likely bring change.
- Team — The above three areas all have great impact on the team and the leadership of a team for a services firm. The unpredictability of some aspects of operating a services firm are going to have direct team impact. Team members have to get assigned to different client engagements if there are changes to an engagement or a client doesn’t pay. Team members slotted for a new client engagement have to get reassigned if the new engagement doesn’t start as anticipated. The team at a services firm can feel like they are operating inside of a washing machine some days. It is incumbent on the leaders of services firms to insulate team members from as much of the daily tumult as possible without sugarcoating or hiding anything from the team. This is a delicate balance for the leaders of services firms because knowing what and how much to share with team members on any given day is as much art as it is science. Services firm leaders want to keep the team informed and aware while keeping them focused on their craft and contribution. Team members can’t do much if anything about a client not paying for example but at some point the team needs to be made aware of what is happening with a particular client and engagement. If things get too volatile for team members at a services firm, team members will start to think about and may leave the firm for a more stable existence somewhere else. The leaders of services firm have to protect their team from as much of the daily upheaval as possible without exposing them to all of the gory details.
I frequently say that starting a services is easy and running one is hard. It is hard because of how fluid things can be for services firms day to day, let alone month to month or quarter to quarter. The leaders of services firms arrive every day to a new and different set of challenges. The best they can hope for is the challenges are ones they have experienced before and have an idea about how to go about solving them. Experienced services firms leaders expect the daily problems and have the confidence and experience to deal with the problems head on even evolving to the point if expecting the unexpected.
Operating a successful and growing services services firm is like, and I think even more challenging than being the founder of a startup. At least a startup is on a course to become a more stable and predictable entity with less daily uncertainty. Services firms have to expect and live with a high degree of uncertainty every day. It is also what makes running services firms interesting and somewhat fun.