Managing for profitability rather than growth
When a startup with a history of growing with external funding finds that it is unable to raise a new round in its expected timeframe, many founders’ initial reaction is to panic. Since the company’s growth so far has been fueled by external capital, they can’t imagine how to survive, let alone grow, without it.
In reality, there are several options available for a company to generate the cash necessary to either break-even or significantly increase its runway while accepting a lower level of growth. These include:
- Raising prices or commission rates
- Renegotiating the terms of variable cost sources
- Cutting less effective marketing channels
- Renegotiating employment contracts or downsizing
- Moving to a cheaper office
- Ending external consultant and agency contracts
- Improving the company’s cash cycle by collecting sooner and paying later
- Improving the company’s cash position by selling fixed assets and inventory
The availability of each of these sources of cash depends on the context of the company. But, very often they are available.
And sometimes these measures aren’t enough to save the company. But, often they are.
Rather than panic, or more accurately after you’ve panicked for a while, you have to take the painful short-term actions that are necessary for your company’s long-term survival. You have to manage for short-term profitability so that you can hope to have another chance at long-term growth.
Originally published at Thoughts of a VC.