Apr 30, 2020

Bursts of Color - Possession is 9/10 of the Law

By Geoff Donaker • Issue #10 • View online

The concept of “possession is nine-tenths of the law” has been around for centuries. It’s been underlined of late, as payments due are seemingly optional in both directions.

"Please hold onto your tickets as they will be valid for a new date."

If you already paid, you’re probably not getting a refund

Tickets for indefinitely-postponed events
Annual software licenses you don’t need anymore
Deposits for pending travel or summer camps
Tuition for classes that are now online

If you haven’t paid yet, it’s negotiable now

Rent, irrespective of what the contract says
Monthly subscriptions for software and gyms
Contractors and professional services

How Much is a Customer Worth in One Year?

Even in good times, I’ve found 12-month collections to be roughly:

Annual agreement with pre-payment: 12 months revenue
Annual agreement with monthly payment: 9 months revenue
No agreement with monthly payment: 5 months revenue

Yes, method #3 will tend to have much higher sales velocity. But investors tend to love the stability of #1… for instance, Salesforce.com sells this way and is still trading at 12x revenue and 100x cash flow after 20 years.

Never Let a Crisis go to Waste

Most of you have already been negotiating down your payables and otherwise using this unusual period to get out of contracts you no longer want. Smart. This next few months may be a great time to experiment with pricing, collections and float terms. If sales are going to be slow anyhow, maybe we can build new muscle that leaves our business in “possession” of cash more often than not.

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By Geoff Donaker

Bursts of Color is a newsletter for start-up leaders who work with Burst Capital. It's meant to include products, people and ideas that I think are interesting and maybe relevant for you.

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