A few years ago, I sat at a coffee shop with Sam. He was a barber at a prestigious shop, but with a problem. He felt his boss was unfair towards him because he did all the work. So, he wanted to quit and start his own shop. I usually caution people from starting businesses, especially if their reasons are not market-related. And I usually lose that battle. So, Sam quit his job and started his business.
Soon he realised that running a barbershop, unlike being a barber, has little to do with cutting hair. This applies to other businesses as well, whether it’s construction, insurance, a law firm — any business. As soon as the doors open, a flood of problems seems to follow: rent, salaries, marketing, leadership issues, capital raising, motivating staff, creating distribution pipelines—all these demands boil into one crisis after the next alongside having the full-time job of, say, cutting hair or supervising construction, or going to court. Hence, it is important first to distinguish whether you are going into business or self-employment.
I was self-employed for a long time until I realised what a terrible idea it was. Self-employment means you pay yourself the salary. Without a team and infrastructure, this option is brutally difficult. Some months have income and others are dry. Falling ill also affects income — possibly at a time of most need. However, when working for someone else, not only do you have access to infrastructure and support, but you often do not need to worry about your income unless threatened with retrenchment or being let go.
Building a business, on the other hand, is an entirely different endeavour. The point of building a business is to create a system that can run in your absence. This is extraordinarily difficult, which is why most founders get lost in the maze of responsibilities as they survive from one crisis to the next. If it’s not a cash flow crisis, it’s equipment failure, or a late payment, or an employee who ruined an important relationship. This is the other side — the chaotic side. Founders and leaders often call me at this point to assist. When we sit, I always ask a question that tells me a lot about the business and its founder. I ask:
Who do you invoice, and when do they pay you?
Believe it or not, many people struggle to answer these two questions clearly and confidently, and there are understandable reasons for this. A content creator, for instance, creates for a specific audience but gets paid by Google, let’s say, or earns royalties elsewhere. It is not clear who they invoice. Other businesses, like Enterprise Supplier Development (ESD) agencies, raise money from company A to support company B, which could also create confusion. Venture capital firms often fund pre-revenue companies and incubate them until they figure out their economics — Google, Facebook, and now the AI companies are all good examples of this — which means they sometimes run without invoicing anyone.
Regardless, there are powerful insights buried in these two questions. Put differently, A business is an invoice that gets paid. If you are issuing invoices that do not get paid, then you will soon run out of resources and be forced to close shop. If you are not issuing invoices, then you have a sales or marketing problem. Or worse, you might be selling a product people do not want.
If we circle back to the content creator, who do they invoice? Is their audience a customer? I think their audience is an asset rather than a customer, despite the immense value created. The customer is the advertising agency that wishes to buy attention. Mind you, the audience members can also become customers when they buy merchandise or event tickets. As you can see, the question remains valid: who do you invoice, and when do they pay? Do you only invoice when you organise an event and sell tickets? Do you invoice when someone asks to buy attention?
The second part — when do they pay — is even more important. I was on the phone the other day with a friend who won their dream contract from one of the biggest companies in the world. They run a logistics company. However, the new client demanded that they move to a larger warehouse, increase staff, security, fleet, and the list goes on. This investment was required before cash could flow, and for months they risked crumbling under the weight of success.
So, whether you are Elon Musk, launching rockets into space, or a street vendor, this is the first principle of business. Who are you invoicing and when do they pay? If you are unclear about how to answer this question, schedule an appointment with me here.
