It’s always hard to run a startup, but at least in 2021 you knew what you had to do: grow fast.
Now it’s not so easy.
At your board meetings, one investor complains that you’re not growing fast enough, another complains that your burn rate is too high, and another warns you to extend your cash runway. You know you can’t please everyone all the time, but it would be nice to feel like you can please someone sometimes!
Ultimately, it’s not your job to please anyone. You must choose the right path for your business. At the end of the day, what matters is building a great business – and a lot of that simply depends on the money not running out.
Here are my thoughts on how to approach this issue based on my experience as a former CEO and current board member and advisor to several technology companies.
Money is no longer ‘free’ and that changes everything
They say time is the one thing you can’t buy, but in fact time is the easiest thing to buy in a startup.
When interest rates were near zero, future income and profits were almost as good as today’s income and profits. Capital markets were willing to make massive investments to build strong earnings streams well into the future that investors believed would be.
The playbook: put money into sales and marketing and become a category leader; ultimately, if the market recognizes your leadership, revenue will increase. Efficiency in the present didn’t matter because in the future – when the company had scale, a stronger brand, a more mature product and a better educated end user – efficiency would increase.
Well, investors today care about the less distant future. They care about how much money they have to put into your business to achieve that future and when it will arrive. If you can earn more than 6% in investment-grade bonds, speculative income 20, 30, 40, or 50 years in the future isn’t nearly as valuable as it was when interest rates were near zero.
You are not the only one who is confused and stressed
If you raised money in 2020 or 2021, you don’t know how hard it is to raise money and you’re likely to get conflicting advice from investors and advisors.