At amazon, it's about cash flow. And what you can get away with…

Amazon is well known for rapid growth but relatively low profit – its founder Jeff Bezos famously asking shareholders to sacrifice this year’s profits in order to invest in long-term customer loyalty and product opportunities that will create bigger profits next year and for years to come.

But the real story behind Amazon’s ongoing growth is shown not so much by its profits, which dipped in 2012 after a few years of growth and have yet to return to 2010 levels, but by its cash flow.

Every small business knows that “cash is king” but it’s somewhat of a surprise to see larger companies paying quite so much attention to it as amazon clearly do.

Amazon’s Cash Flow vs Profit – (C) HBR Blog

Amazon’s strategy hasn’t been about profit, it’s been about growth, and the reason that amazon has been able to grow so dramatically into many different areas in recent years is that they have the operating cash flow to do it.  I’d recommend the HBR article for the details, but long story short?  Amazon, just like a small business, have held profits low by reinvesting much of their free cash in growth – and have boosted the availability of that free cash.

With such a strong position in the minds of customers, Amazon are using their ability to shift a high volume of product to negotiate very long payment terms with their suppliers.  As a growing profitable company, their credit is good of course, so in return for access to volume (and many other benefits) suppliers are putting up with very long payment terms – quite simply it’s worth it.

Can your business start the virtuous circle that Amazon have found?  Good cash flow fuelling growth, fuelling good credit, fuelling good cash flow? Or are you extending credit where credit’s not really due?

It might be time to take a leaf out of Amazon’s book.

Or at least some reading from the excellent hbr.blog

DIY Employees

In recruiting, it’s often tempting to paint a glorious picture of what your small business has to offer to the potential employee, indeed as the employment market hots up – it’s likely you’ll be competing with companies with deeper pockets and swishy benefits.  But in putting together this “gold plated” experience for new members of the team, are you really going to find the right employees to make a real contribution to building your small business.

I advocate an alternative route, and it’s one which doesn’t meet with universal approval.  As a small business, we don’t have a corporate IT department, or facilities department, or a tea trolley for that matter, and so we need to recruit team members who are on the lookout for what needs to be done and who are prepared to get in and do it.  When interviewing candidates, I think it’s important to make it clear that the relaxed environment and informality of a successful small business are only possible if everyone’s willing to muck in and pick up the jobs that need doing.  This isn’t to everyone’s taste of course, and it’s a useful thought process for a “big company” employee to go through before deciding whether they really want to leave the cosy world of the well defined corporate job and venture into the exciting world of small business.

To bring this into the very sharpest focus, and help employees understand that we’re serious when we talk about self starters, our new starters are presented with a checklist on joining the team, and not too far down after the mandatory health and safety briefing comes the line: “Assemble furniture”

Observing what happens next will both tell your team a lot about your ethos as a company and also tell you a lot about your employees.  Whilst your interview process will have tried to screen candidates for how proactive they are, how they respond to new challenges, how able they are to follow unfamiliar instructions, how willing they are to ask for help, how they collaborate etc, the interview process is a notoriously difficult environment in which to assess these characteristics.

After a couple of hours with an Ikea desk, chair and pedestal drawer unit, however, you’ll have an excellent idea which new starters are going to get on well with life in a changing, growing small business.

Add to that the added sense of achievement when the team members walk up to their newly installed workstations, all made by their own hands, and you’ll see why I’ve been an enthusiastic advocate of DIY employees.

In case you’re wondering, yes, the desk at which I’m writing this was put together by yours truly.

Character

So much of the time in business we feel the need to try and be the perfect team-mate, the perfect employee, the perfect boss.  But of course that’s not very achievable.  Is it better to be a character – to be remarkable and inspiring to others even with (because of) our flaws?

Yesterday I had the great honour of sharing some thoughts at hubbub’s third birthday party and I realised that the key characters in that team were indeed inspiring and remarkable and bore a striking resemblance to their alter-egos (even moreso than the physical resemblance which is shown below).

How much fun, and how rewarding is it to identify with remarkable characters as a way to help us lead others to great things?