It’s exciting being at the forefront of innovation in your industry and riding a growth wave. But there are dangers lurking in the breakers for service oriented web companies with big goals.
Selling services online front loads a business with customer acquisition costs including infrastructure, marketing and customer support. But if sales are subscription based then cashflow can be lumpy and tends to lag well behind sales conversions. Another reason for this problem is that, for online sales, the payment gateway at your bank holds funds until they are cleared. If you are a new company, the holding period can be up to a month. In the meantime there are bills to pay and mouths to feed.
There are only two ways to get around this problem, bootstrap the business or raise capital. By bootstrapping, the founders are effectively providing the operating capital by contributing their time until the business reaches profitability. This is the approach we took at iWantMyName. Bootstrapping generally leads to slower, more manageable growth and allows founders to retain control. Raising growth capital is a valid strategy as well, but the task itself takes up a great deal of management time and head space that can distract from improving the core business. Ultimately, happy customers are your best source of capital.
Whether or not you go for raising capital, the ultimate goal should be investing time in improving the service offering. This in turn lowers the cost of customer acquisition. By improving the customer experience you should attract more referrals, have fewer support enquiries and enjoy better margins through additional sales of premium services. It seems intuitive, but for us it was a thrill seeing organic growth tick upwards as we gradually improved our site. Happy surfing.