Two Rules to Successfully Run a “Startup” Company
Why starting a business is more about you, and less about the company
What a lot of aspiring entrepreneurs seem to forget is that you can’t just create a startup, you need to create and fund a startup.
Cash is King
I am going give you what we at BGO call a Blinding Glimpse of the Obvious, and that is that the best way to successfully fund a start up is with cash.
In order to fund any business, you need cash that is real and present.
You can’t run a business on the promises of cash, or any illusions towards getting something later on — nothing other than COLD, HARD, CASH will suffice. It needs to be available immediately, to keep the necessary components of your startup functioning while you grow organically.
What does it mean for money to be real?
Outstanding invoices, IOUs, trading services, time-for-prints, stock options, cash-value benefits are all great, but they’re not real money. You can’t take these to an ATM and deposit them for you to pay bills later. You can have a million dollars in outstanding invoices, but none of those will help you if you can’t pay rent next week.
What does it mean for money to be present?
Do you have a check from a client sitting in a basket waiting to be deposited? Did you process a payment yesterday from a client online that usually takes 2–3 days to clear? None of this money is present. Until the money is in a bank account, or in a cash roll, it’s useless. A check is just a piece of paper until you take it down the street to the teller. The best measure of how real your cash is, is your bank account statement.
Ignore the King
When you do get any cash, you need to operate as if it doesn’t exist.
This isn’t the most exciting advice, but you must treat any funding for your startup as though it isn’t really there.
Your goal should be to build the business as if you’re doing it completely organically, with all your extra money set aside for emergencies or unforeseen costs (because there will always be unforeseen costs).
All too often in the early stages of business, the naturally constraining environment is disrupted when suddenly a great pay day appears and people start losing their sense of fiscal responsibility.
Yes, when that ‘Series A’ comes in you should be excited, it is proof that your startup is on the right track. But don’t toss aside your discipline in the pursuit of buying the new shiny things.
Bad habits don’t automatically fix themselves when you have more money; they get worse.
The problem with cash is: if you have underlying bad habits, big dollars in means big dollars out. That is a huge red flag for smart private equity players, because it is poor fiscal prudence.
Some of the most successful companies we hear about every day spent their first years in dorm rooms, basements, and garages. There’s a reason we don’t hear about them until they’re already successful, and that’s because they don’t splurge on multi-million dollar loft spaces before they can afford it. The recognized that it’s more important to keep the lights on, than to buy a fancy name plate.
Maintaining a mentality of being cash-less, even after you have it, is the key to actually keeping it.
If you create the right habits around this concept early on, it will lead you to greater success down the line.
It will further reduce the likelihood of running out of cash (the fast track to disaster) because cash is always king, and it is always constrained.
So, no matter what the source of funding, develop the mindset, set up the framework, create the discipline, and the internal processes to operate under the assumption that you don’t have any at all.
Wait to buy that new fancy office when it can be purchased from your profits, that way you’ll be around long enough to actually enjoy it.
Aaron Webber is a serial entrepreneur and CEO of Webber Investments LLC, as well as a Managing Partner at Madison Wall Agencies.
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