The Silent Assumption Destroying My Business
When Sean and I started Whiplash, we generally put off as many things until later as we could. We knew we’d eventually use barcodes to scan all of the items as they shipped to ensure accuracy, but it could wait. We knew we’d bill for storage based off the dimensions of products. But to start, we could just count pallets. And, we knew we would have an automated billing system. But when we had 2 clients and the Whiplash app was just a script to print invoices, we needed a quick & dirty way to get paid.
That turned out to be Net 30, where we’d just create a generic invoice in Quickbooks. We’d summarize what we’d done for the client, they’d send us a check, and we could “kick the can” of automated billing down the road a little further.
Part way through the first month, we discovered a flaw with that plan: we buy postage immediately as we ship. With postage making up more than half of what we invoice the client, for us to bill the client $100 at the end of the month, we had to spend $50 of our own money leading up to that. Lending the company $50 wasn’t bad, but it wasn’t long before those loans were a few thousand dollars, and it started getting painful. We were starting a business in the first place because we needed to make money, and here we were actually lending money.
To keep up with the postage, first we exhausted our own meager bank accounts. Then, we started borrowing money from friends and family. As the company started growing, the problem just got bigger and bigger. We’d borrowed $15k when we maxed out our friends, and suddenly we had a very real problem. Even though we were mildly profitable, we literally could not afford to operate the business we’d started. Traditional lines of credit were out– we’d finally started growing quickly, and didn’t have the history banks want to see.
I can tell you, it’s a hard spot to be in when you’ve poured your energy into something for a couple of years, pivoted to a model where it’s finally (finally!) showing signs of succeeding, and your bank balance keeps going negative while you scramble to borrow more money or get a client’s check into the bank. Co-founders worry. Spouses worry. Even though you tell everyone it’s ok and show them why you still believe, you worry, too.
So there was already plenty of stress in the air when our bank balance finally went below zero, and we didn’t have the money to bring it back positive. I remember waking up, seeing the negative balance, knowing we couldn’t do anything about it, and just feeling blank inside. I didn’t tell anyone, I just closed my laptop and took a shower to start my day, wondering what the hell I was going to do. We had a little bit of room on a credit card we could buy postage from. That would buy us a few more days, but then that would be maxed out, too. We wouldn’t be able to buy postage, which means orders would stop shipping. Customers would be affected. And then payroll would come due. And then rent.
The unrecoverable spiral, where you fail despite still desparately wanting to succeed, was in sight.
Fundamentally, something was out of whack. Our clients were charging shipping and handling at the time of the sale, so the money existed– the problem was that it was in our client’s bank account, and not ours. Somehow we had to change the flow of money so that we weren’t financing our customers’ businesses.
By the time I finished my shower, Sean had noticed the empty bank account, too. We got on a call and came to the conclusion that customers would have to pre-pay for their services. We’d have them put a credit card on file, and we’d charge an average week’s worth of services. We’d write the basics of the billing automation, which would spend a client’s account down as we shipped orders for them, and when the client’s account hit zero, we’d automatically bill their credit card for another week. I hammered out the basics of how I saw it working, and Mark jumped in to refine my work and make my prototyped code sane. All the while, as we scrambled to get the programming done, I was convinced that our customers, who were used to having this ‘float’ of shipping charges in their bank account, would freak.
In fact, I prepared myself for the eventutallity that our customers would leave in droves. I accepted that we’d build the customer base up from scratch again; this time with a group of people who took the new pre-pay style as normal. It was a bitter pill, but we literally could not continue to operate the way we were.
As the week ended and the billing features were nearly ready for release, we sent an email to customers notifying them that the change would take effect in a few days, at the start of the new month. Since we couldn’t actually survive that long, I reached out to a couple of our larger clients and asked for an advance payment against the invoice they’d be receiving in a few days. Thankfully, we’d built up enough trust by then that they were willing to keep us afloat.
So with some fumes to live on, the announcement email went out. The one I was pretty sure would cause everyone to leave. The unanimity of the response shook me, and it still does.
Every single customer was fine with the advance payment. One customer– one– asked if they could be delayed a few months, which we gladly allowed. As the pre-payments started coming in, our bank balance recovered over the course of the week. Plenty of things were still wrong with our company, but we were distinctly alive and viable.
I had made an assumption. I assumed I knew how our customers would react, and I represented that assumption to myself and others as truth. As a result, we put off solving the billing problem for months and endangered our company. I can’t stress that enough: Do not confuse assumptions with the truth. We have to recognize assumptions for what they are and convert an opinion into a hypothesis. A hypothesis recognizes the unknown nature of our situation inherently; a hypotheses begs to be tested for the truth, not just the emotional truth inside our head. A hypothesis reforms our statement as a query, and gives us the opportunity to objectively inspect, confirm, or deny. When we are driven by what we’ve learned over over what we think we know, that’s when the path to success has the opportunity to be revealed.
The path to success is not paved with stones that say, “I think…”, but uncovered with strokes of a broom, each of which start with the words, “I wonder…”.
And the path may not look at all like we thought it would.
