The Startup Paradox: How can a startup be a success and a failure at the same time?
Startups that are on the brink of huge success are often on the brink of spectacular failure — the line between the two extremes is often razor thin. For example, last week I ran into a former employee who was working for a friend’s startup. When I asked him how things here is what he said:
We’re fucked. The monthly cash burn is over $200,000 and we’re going to run out of money in three months. Our idiot CEO is clueless. While we’re here dealing with this trainwreck he’s on the road speaking at conferences, doing interviews for Bloomberg and the Wall Street Journal — if they only knew how full of shit he is. I hate my life.
Later that day I gave my friend (the CEO) a call to see if I could do anything to help and here is what he said:
We’re doing great. Our annual run rate revenue is now over $5M. Contribution margins are over 40% and we’re on track to reach breakeven in four months. We’ve got a meeting with the partners at Sequoia — hopefully we’ll get a term sheet. Our existing investors are pumped.
The funny thing is that I know BOTH of my friends are telling the truth. I’ve been in the same situation before — hell one of my companies is in the same situation right now. It is all about perspective. My former employee is dealing with the struggles and stress that comes part and parcel with undercapitalization. My friend is excited that the company is finally hitting its numbers so they can raise their next round. Three months runway might be a little short (I like to have my funding sorted six months before running out of cash), but his existing investors are pleased and will bridge the company if the fundraising process drags on. The startup game isn’t for everyone — it isn’t really for most people. At the end of the day the most likely outcome is failure — even the guys investing millions in your startup expect it to fail.