1. Cut back on spending
As soon as our investor pulled out, we knew we had to take drastic measures to stay afloat. We cut spending wherever we could – because the business was so new, we went as far as letting all the reception staff go and working all the shifts ourselves (for a very long time) as well as doing the cleaning. We hustled for a long time. Raising money is impossible unless the underlying business is performing, so cost cut where you can, try to keep margins good and show the business is strong.
2. Use your other investors
Speaking to our other investors gave us peace of mind but also opened up the possibility of them taking up the investment, and gave us ideas on who else to pitch to. Every director has a duty of care, so share the burden with your board. We spent a lot of time with a couple of our investors who were specialists in their areas. One was a top sales executive who helped us focus our sales effort. That knowledge is so useful – even just using them as outside sounding boards helps.
3. Contact creditors
We had just built the website so, along with the gap in our finances, we had some unforeseen costs. We spoke with our contractors immediately to tell them what happened – warning them of any delays in payments before they happened. Most companies are pretty understanding about working out payment plans or changes in services. They allowed us to make staged payments for about nine months until we were all square. Alternatively, if you’re a business waiting a long time for invoices to be paid, invoice factoring* could be a good move.
4. Double down on ROI
We had to look very carefully at the cost of acquisitions; as a consumer-facing business, we had to understand our metrics. If we spend X getting someone to be a customer through a channel and they spend Y over their lifetime as a customer then, clearly, we had to ensure that Y is bigger than X. It may sound obvious but it was a key metric for us to understand where to focus our resources to get the biggest return on investment. This is even more important if you’ve had an investor pull out and your already limited resources become stretched further.
5. Explore other revenue streams
We sought to leverage our existing customer base to offer new services with the aim of increasing average spend. We started offering additional fitness services by utilising some of our instructors’ skill sets, which not only grew our revenues but also built the instructors’ profiles and further ingrained the customer into our business. The kicker was this was outside of class times, which meant we were sweating our space asset.
*Usually used by B2B companies, invoice factoring provides a quick and immediate cash source when a debtor’s payment is delayed. A business sells their invoice debt to a third party (the factor); the factor pays 80% of that outstanding invoice to the business up front, and the remaining 20% (minus its fees) when the invoice is eventually paid.