We here at Good Operator write constantly about how to self-fund growth from cash flow. That’s how you pool the capital for growth internally without taking on investment.

But what does it look like to deploy that cash?

Most founders imagine it’s creating a stockpile of money and then spending it on experiments, ads, content, etc. There a mental image of a big bag of cash you dump onto business and it grows.

One time investments or individual campaigns that boost the business.

And sometimes there is a specific initiative that requires a significant, one-time investment that DOES look like that.

But it also comes in another form. One that a lot of bootstrapped founders struggle with.

It’s adding recurring costs that expand the ability of the business to grow.

Or said another way…

Gross.

What a mouthful.

Be honest, you totally glazed over halfway through like when you read the names of sci-fi characters in books.

“Jumping for laser sword Aucta..mish….a…whatever… spins around deflecting Grrrrima….nassssomething’s finishing blow!”

In English please.

Ok. Investment doesn’t look like $50,000 spent on (insert one time growth initiative/campaign here).

It looks like 14% profit margins instead of 21% margins.

In tech, so many things require major capital investment to build. It’s milestone to milestone spending. Then once the feature, product, or equipment is built/acquired, the spend is either done or goes to another project. And it’s all burn. Just spending down a big pile of cash.

In cash flow businesses, you are more likely investing in the operational capabilities. The PROCESS and/or ability to do more in an on-going capacity.

For example, you’re going to invest in adding an agency on retainer to help you write, edit, and post your social content to add a new channel. That’s not a lump sum, it’s an additional monthly cost.

It’s not only harder to budget as a fixed amount for this, but founders are also more hesitant to do it. They can understand investing $20,000 that they set aside and then goes away, but adding to your fixed costs - that goes against everything we’re doing here. Margin optimization, profits, cash flow, what happened to that!

I get it. It’s much harder to pull the trigger on but that is what self-funding growth looks like here.

The two best examples:

There are more examples and depending on your business you might make some adjustments but let’s follow it as an example.

Send this to someone you’d like to connect with over coffee. Say something like, ‘Hey! Been a minute! Thought this was interesting. Catch up for coffee?’

It works.

Do it.

You started tracking labor costs closely. You’ve managed the team’s capacity to a highly efficient 85-90… maybe 95%+ utilization. Labor as a percent of revenue is a TIGHT 42% - 3% under your target of 45%.

Great job.

Now break it.

We need your team deploying enhancements to the products, building AI-centric workflows, and creating content for your channels. We need your team to over-deliver for referrals and testimonials.

And we need space so you can accommodate new growth.

We need room to add clients and customers so everyone is going to be a little under underutilized and you’re going to hire at an earlier trigger point than you normally would.

If usually once everyone hits 95-100% capacity you bring on someone else, now you’ll do it maybe at 80%. Or 75%.

All this adds up to your cost of services labor going from 45% up to 50%, 55%.

Your margin goes from being 25% to 20% to 15%.

You’re still profitable. We’re still generating cash. And at any point you could ease up on the growth, fill in the capacity, and get back to 25%+. But you’re investing in growth through a reduced profit margin.

Growth mode doesn’t look like dumping money on various initiatives and projects. It looks like 15% margins instead of 25%.

It’s running marketing as a percent of revenue at 17% vs 15%.

The visual makes it a little easier.

Cash flow is such an appropriate term because it really is very fluid. It’s not as simple as this dollar came in and then goes to this thing. There is cash coming from all different sources, commingling, being held, going out, it’s hard to keep track of.

On any given day your bank is full of money that includes profits, revenue that isn’t earned, money that is set aside for taxes, money that is about to pay off a credit card, and a dozen other things.

So we have these analogies we lean on to wrap our heads around this fluid and dynamic resource.

The end result is the same however you think about the investment - but hopefully this mental framing makes it easier to take action on and understand what “winning” looks like when you’re successfully “investing” into growth.

It’s not a separate account you pay for things out of so you keep your margins. It looks like shrinking margins while you build a larger businesses capable of growth.

Over time, you should see these numbers come back around.

If you up your spend from 45% - let’s say that’s $45,000, to 55% - that’s $55,000 on a top line revenue of $100,000 that will eventually go down as you grow. As you grow to $110,000 your $55,000 is now down to 50%. And so on.

So you keep “reinvesting” by putting more spend and pushing it back up.

Always being intentional. Always making sure there is growth behind this.

This spend doesn’t always specifically DRIVE growth and it’s not part of the “startup” playbook so it often gets overlooked. But it absolutely is part of your investment in growth.

My final word of caution and encouragement is: make sure you have a really clear line of sight on your financials and cash flow. This DOES NOT WORK when you are flying blind. It’s like deciding to sprint through a furnished room in the dark. Best you can hope for is that you get lucky.

Know your parameters. If you get above, say, 25% you increase capacity, spend more on marketing, etc.

If you are getting close to 10%, you reign it in to make sure you still have money.

Sometimes it’s in absorbing a month or two of negative margins with some temporary costs or aggressive expansion.

But have a plan for what you expect things to look like - revenue, expenses, margin, cash flow - and then how long before you see things come back.

Invest in growth, invest in capacity, and invest in your systems to track and manage these.

Best,

Chase Spen…ssssomethinsomethingssST-UH

A Good Operator Life
A Substack Journal dedicated to the lifestyle behind the Lifestyle Business

Follow Chase on LinkedIn
Antagonistic posts, unnecessary rants, and the occasional gem of insight

Follow Chase on Instagram
A visual journal documenting the life of a cash flow operator

Work with Good Operator
We obsess over financials, systems, workflows, and cash all day everyday - let us obsess over yours.