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 .