Wait Or Go

Sometimes it is best to wait and see if things settle down.  Sometimes it’s best to take action.  It’s hard to know when.  If you wait too long and the house is on fire when you decide, no one will want to help you put out the fire.  If there is smoke, sometimes you can put the fire out yourself, but sometimes you might need a little help.  When it’s just smoking, you can get help.

Sometimes there are strategic reasons to make a move early.  I was talking to an entrepreneur once about this and they made a good point.  They knew who their competitors were, and looked at the larger VC firms out there.  Many of those firms were knocking on the door, looking to talk about investment.  The thought they had was even though they didn’t need the money today, just getting some of those firms in precluded them from investing in any competitor.

Startups have limited choice when it comes to getting cash.  The best way is obviously grow top line revenue.  Hard, but if it was easy everyone would do it.  If you aren’t growing your top line, then you don’t have a business.  There are different rules of thumb on growing it in order to get the next round of investment.  It seems like those goalposts move around all the time so I don’t pay too close attention to them.  Build a business that grows top line revenue in double digit percentages and someone will notice.

Startups can cut costs by laying off people or not doing what they want to do.  It can work in the short run but the Monty Python Black Knight strategy doesn’t build a sustainable business.  That being said, when you encounter some trouble, establishing hard constraints, discipline, and narrow focus will help.  In fact, from the first day of starting the business you ought to have focus.

Raising VC money is the most expensive capital.  Not only do you burn it, but you give up equity in order to get it.  There isn’t really a wrong or right time to raise VC.  Just know that another camel’s nose is coming under the tent.

Tom Sossnof of Tastytrade says to raise money whenever you can.  He doesn’t worry so much about dilution as long as he is raising at higher valuations.  Job number one of a CEO is to make sure there is money in the bank.  Without a cash cushion, things get tense.  Instead of making decisions from a position of strength, you make a decision out of fear.  All of a sudden, there are limits.  Sossnof saw that first-hand when he was pit trading.  No capital, you can’t try to assume risks that you’d like to assume.