4 Cash flow lessons from startups that small business owners can use

Startups are known as industry disruptors. They’re the mythical Silicon Valley unicorns that take an idea and turn it into a billion-dollar business. Yet focusing solely on startups’ disruption can make it seem like they share nothing in common with traditional small- and medium-sized businesses (SMBs). Ultimately though, the primary difference between startups and other kinds of business is that startups are created to scale quickly and often prioritize growth over revenue. 

In other words, startups recognize that managing cash flow is crucial to their success. They’re often able to identify what is essential for their business and create strategies to ensure they always have access to what they need to continue growing. Here are 4 lessons that SMBs can take away from startups’ cash flow strategies.

Lesson #1: Credit helps maintain cash flow 

An often-repeated statistic about startups is that 90% will fail within 10 years. These failures typically happen when a startup runs out of cash before it can become profitable (or be acquired). By having ready access to a line of credit, startups are able to continue operations when revenue is limited without having to constantly worry about getting more cash.  

Almost all SMBs will be pressed for cash at some point. As such, most businesses would benefit from having access to credit in place before they need it.  

Tip: Use a credit line to buy now what your business needs now and take advantage of no interest or fees on repayment. Amazon Business’s Pay by Invoice offers 30-day payment terms* to eligible organizations (additional extended payment terms available with an eligible Business Prime membership plan). 

Lesson #2: Make the most of downturns 

While it may seem counterintuitive to launch a business during an economic downturn, many startups do just that. Pinterest and Airbnb launched following the Great Recession of 2008, capitalizing on hidden customer needs for fashion-focused social media and affordable vacation rentals, respectively. The organizations that make the most of downturns are often those that pivot their business towards fulfilling an immerging demand – like a clothing manufacturer creating face masks in 2020. By thinking about unmet or immerging customer needs, SMBs can boost their cash flow. 

You don’t need to completely rethink your offerings to capitalize on a downturn, however. Downturns also provide an opportunity to holistically assess your organization’s structure. For example, you might conduct a supply chain assessment to see if there are any possible hiccups that can be fixed preemptively. A downturn may also give you the chance to implement new budget management tools or optimize existing ones.  

Tip: During downturns, competitors often pull back on advertising spending.¹ Your organization can gain market share from those more reticent competitors by increasing, not decreasing, advertising spending. And with a larger share of the market, your organization can strengthen its cash flow through new business. 

Lesson #3: Develop an appropriate pricing strategy 

Startups often focus on finding a market fit for their product, but they also work extensively on developing a successful pricing strategy. With this information, they can deliver a product or service at the ideal price for themselves and their customers.  

SMBs can also experiment with pricing strategies, like: 

• Cost-plus pricing
• Competitive pricing 
• Penetration pricing 
• Results-based pricing 
• Subscription pricing 

Tip: Test different pricing strategies. A successful pricing strategy will demonstrate a comprehensive understanding of the customer, the product or service, and the market in addition to a clear understanding of the unit economics.  

Lesson #4: Flexible payment options are key 

Rigid payment terms can often stifle the cash flow of startups, especially if they have high setup costs from purchasing essential items like office supplies or manufacturing equipment. But rigid terms can create cash flow issues for an established business, too.  

Your organization may benefit from proactively pursing different payment terms, like: 

• Negotiating lower terms on receivables can help improve incoming cash 
• Negotiating higher terms on payables can help keep more money in your bank account 

Tip: Many business credit cards provide flexible payment terms. The Amazon Business American Express Card offers 60 day payment terms on U.S. purchases at Amazon Business, AWS, Amazon.com, and Whole Foods Market. Card Members with eligible Prime memberships receive 90 day payment terms with the Amazon Business Prime American Express Card. Terms apply. 

In some ways, the cash flow issues that startups encounter are magnified versions of what SMBs experience regularly. These four strategies are designed to help your organization manage cash flow and head off possible problems. While your organization may not be the next Silicon Valley unicorn, it can still benefit from securing and strengthening its cash flow – making it easier to get through downturns while setting itself up for future growth.  

*Subject to credit approval

¹ https://hbr.org/1990/01/ad-spending-growing-market-share