Mastering Cash Flow Helped This Bootstrapped Start-Up Grow to 75 Employees in Five Years
BY: VERNE HARNISH
John Criswell expanded Pulse8, a healthcare IT company, by making the most of the Cash Conversion Cycle in his business. Now he’ s poised to grow the firm to 100 employees.
WITH THE US healthcare system in turmoil, John Criswell’ s company, Pulse8, is in hot demand. Pulse8 is a healthcare IT company in Annapolis, Maryland, that helps healthcare providers and insurance companies operate more profitably. It offers these firms technology that relies on Big Data mining and other approaches to ferret out waste and identify risks that could cost them money.
Since Criswell— an MBA from Johns Hopkins University and a consumer products, supply-chain and healthcare industry veteran— founded Pulse8 in 2011, he has grown the profitable company to 75 employees. He expects to expand his team to 100 employees in 2018.
“ We are investing and developing new products to meet the growing demands in health care,” explains Criswell.“ We believe you cannot dream big enough. We are launching six new products this year and adding new customers. The combination of customers, market expansion, growth, and new product development is driving our enterprise.”
UNDERSTANDING THE CASH CONVERSION CYCLE
One secret to Pulse8’ s fast growth has been mastering cash flow. When Criswell first started the company with his wife, he decided to bootstrap the company. Doing so posed a big challenge. His ideal customers were giant companies that had the budgets to work with Pulse8 on a large scale. However, serving these big enterprise accounts required him to staff up. That cost money.
As he soon discovered, payments from these giant customers often rolled in slowly. Pulse8 had to invest a lot of money up front to get projects done and often got paid long after the work was completed. Even though Criswell made decisions that kept costs down, like having most of his employees work virtually, cash flow often got tight as he added to his team.
To make the most of his cash flow, Criswell turned to the Scaling Up system for growing a company as described in my book by the same name. After reading the chapter on Cash, he realized he had to master his Cash Conversion Cycle. This is a key performance indicator that measures how long it takes for a dollar spent on anything— rent, utilities, marketing, payroll, etc.— to make its way through the business and back into the business’ s coffers.
FOLLOWING THE MONEY
To get a clear understanding of the Cash Conversion Cycle, Criswell and his leadership team created a document that showed all sources of funds and its uses, such as salaries and professional services, for the current month and six months out. The team reviewed that document weekly. By totaling the incoming funds and subtracting those they had to pay out, they came up with a cash balance for the present month and the upcoming months. As a result, they could anticipate any trends that would influence their ability to reinvest in the company or pay their bills.“ Run it out for six months and you can see the trend of your cash movement,” says Criswell.
That visibility drove how the company handled its contracts, accounts receivable and accounts payable. To prevent money from getting tight, for instance, they made a concerted effort to negotiate contract terms where they got paid in advance by their big clients.“ Getting those dollars up front was key,” says Criswell.
Persuading its clients that they offered something different from competitors helped them make their case that it was worth giving Pulse8 favorable terms. Pulse8 has developed patent-pending algorithms that help its customers eliminate waste and unnecessary healthcare interventions.“ We were doing very new and different things with the data,” says Criswell.“ The market understood that.” Pulse8 also worked out favorable payment terms with its vendors. Its team negotiated carefully up front, so there were no surprises later and they could maintain good relationships.
WINNING THE RIGHT BUSINESS
Another key part of Pulse8’ s strategy was targeting customers whose business would really move the needle when it came to profits. Criswell realized early on that the customers who would truly help the business grow were large B2B clients whose use of Pulse8’ s products provided validation in the marketplace.“ We knew exactly who those customers were,” says Criswell.“ We targeted them in our sales approach.”
He and his leadership team constantly ask themselves a key question: Are we spending our funds in the right places?
Asking that question proved helpful when, at one point, the company was investing a lot of time in vendor partnerships. On examination, Criswell and his leadership team found these relationships did not end up yielding much value and refocused on the partnerships that made the most sense.“ Our core partners we hold dear and close to our business strategy,” says Criswell.
Avoiding waste freed cash for investments, such as using Rhythm Software to help the company’ s leadership team stay focused on execution, and activities such as hackathons, where the company’ s virtual team gathers for a multi-day event at the corporate office.
Staying in control of the firm’ s finances made it attractive to investors. From 2013 to 2014, Criswell raised $ 1.4 million in angel financing, which helped Pulse8 to continue to grow. So far, he hasn’ t needed to raise venture capital, because of his smart cash-flow management practices. If his team experiences roadblocks in keeping the Cash Conversion Cycle moving quickly, they discuss the obstacles at daily huddles and find creative solutions.
Throughout Pulse8, says Criswell,“ cash is king.” That’ s the way your team needs to think if you want to grow without having to sell a lot of equity along the way.