This is a cautionary tale about unmanaged growth. (All companies, people, and places are fictional.)
Once upon a time in the bustling city of Technoville, there was an ambitious managed service provider (MSP) called ACME MSP. Led by the visionary CEO, Alex, ACME quickly gained a reputation for its cutting-edge IT services and exceptional customer support. The demand for their services soared, and the company experienced rapid growth like never before.
Flushed with success, Alex decided to seize every opportunity that came their way, expanding their services and taking on numerous high-profile clients. As ACME Solutions expanded, so did their workforce and operational costs. The increased revenue fueled a sense of invincibility, and they continued to chase growth without considering the potential pitfalls.
Trouble Ahead?
However, as ACME Solutions grew, they failed to pay attention to their cash flow management. The influx of new clients led to extended payment terms and delayed invoices, but the expenses and overhead costs remained constant. As a result, the company's cash reserves started to dwindle, and they struggled to meet their financial obligations.
At first, Alex dismissed the cash flow issues as temporary hiccups, believing that the soaring revenue would eventually fill the gaps. They continued to focus on acquiring new clients, oblivious to the growing financial crisis within the company.
Soon, the consequences of their poor cash flow management became apparent. Vendors and suppliers began to demand payment, employee salaries were delayed, and critical IT infrastructure upgrades had to be postponed. The once happy and motivated workforce became disillusioned and demotivated as they struggled with the uncertainty of their paychecks.
Trying to Save the Business
As ACME Solutions' financial situation worsened, they desperately sought external funding to stay afloat. However, with their mounting debt and a tarnished reputation due to late payments, potential investors and lenders were wary of extending help. The company's credit rating plummeted, making it even harder to secure financing.
Unable to break free from the vicious cycle of poor cash flow management, ACME Solutions' service quality began to decline. Clients noticed the drop in performance and started to voice their dissatisfaction. Many long-standing customers decided to switch to competitors with more stable operations, leading to a significant loss of revenue and trust.
With dwindling cash reserves, mounting debts, and dwindling clientele, the once-thriving ACME Solutions was forced to downsize its operations drastically. Layoffs and restructuring became inevitable, and talented employees were lost as they sought more stable employment elsewhere.
The Cautionary Tale
The cautionary tale of ACME Solutions serves as a stark reminder of the importance of responsible cash flow management, especially during periods of rapid growth. A focus on sustainable growth and prudent financial planning is essential for any business, regardless of its size or industry.
In the real world, so many MSPs are becoming wildly successful in unprecedented ways. The availability of automation tools, tighter integrations, and widespread adoption of the managed services delivery model have created opportunities for motivated business owners to grow their businesses faster than ever before. While many have adopted a policy of payment prior to service delivery, the changing economy may create financial pressure on many MSP customers, and requests for flexible financing solutions could increase.
Before you agree to sacrifice healthy cash flow and reserves for continued growth, make absolutely sure (meaning talk with your accountant or financial advisor) about the risks. Financial stability and healthy cash flow create options that allow your company to grow and protect great culture, while poor cash flow eliminates almost all choices and drives the necessity for “unnatural acts” which fly in the face of healthy culture and ultimately healthy customer relationships.
This is a truly great time for many MSPs, enjoy the success but protect against the potholes on the road ahead.
Ted Roller has spent his entire adult life working in the channel, first is an MSP and then as a channel chief for Intronis, LogMeIn, Mailprotector, ConnectBooster, and others. Currently, Ted is President and CEO of GetChanneled, a virtual channel chief organization that helps early-stage SaaS companies build their go to market strategy and channel programs. He has been recognized as Young Man of the Year in Troy, Ohio, his MSP was recognized as one of the "Fast 50" growing companies in the Dayton Business Journal, and he has been recognized for his work with channel organizations many times over. Ted lives in Raleigh, NC, but can generally be found at channel events or scuba diving in the Keys.
