Every business has one or more growth bottlenecks. For successful service-oriented startups, the bottleneck is often their biggest expense: payroll.
The employee side
Consider a service company experiencing a growth phase. Initially, things appear to go well. The startup is adding clients and deploying staff to service those clients. Eventually, though, the company reaches a point where staff is 100 percent utilized. At this critical juncture, how do you handle your next new client if your staff is fully booked?
One alternative is to ask your staff to work overtime. This approach works initially, but it eventually produces diminishing returns. A second alternative is to turn clients away. However, no entrepreneur ever wants to be in that position. The last alternative is to add staff, but that is easier said than done because many growing startups can’t afford to add staff. Let’s see why.
The financial side
One advantage of working with retail clients, rather than business clients, is that retail clients usually pay for the work as soon as it is completed. For example, if you hire a plumber, you pay for the work as soon as the job is done. This arrangement makes for great cash flow.
However, business clients seldom pay as soon as the work is delivered. They often ask for net 30- to 60-day payment terms, giving them one to two months to pay your invoice. This scenario is where financial problems begin.