Our pet peeve is when a company’s leaders think it should grow regardless of profit. This is just reckless, unless you’re a venture-backed firm pioneering new territory. For everyone else, we recommend getting profitable with the work you have, proving you can get to 15% profitability (based on our adjusted Simple Numbers), adding labor to knock profit back

to 10%, and then growing to 15% again. Lather, rinse, and repeat.

In Gary’s case, volume is detrimental to cash. The more Gary sold, the worse his cash got (his gross margin percentage was 31%, while his working capital percentage was 41%).

As mentioned in the beginning of this section, you can get by with decent People, Strategy, and Execution, but not if you run out of Cash. All growth firms hit bumps in the road (or craters!). Having sufficient cash is key to surviving another day.

To tackle the cash conversion cycle, start by reading “How Fast Can Your Company Afford to Grow?” a Harvard Business Review article by Neil C. Churchill and John W. Mullins.

That was a difficult time for me. I love building businesses, not disassembling them. However, we all have an opportunity to learn in everything we do. I came away from this experience with a profound appreciation of the importance of cash in corporate performance—“free cash flow” as the single most important measure of corporate soundness and performance.