How not to sink a start-up: Manage money well
Monday we saw that start-ups make the mistake of not talking to customers, today we’ll move on to the second mistake I shared in: 28 Lessons from Start-ups That Failed, they managed money poorly.
If you remember one thing, it’s this, money is not a silver bullet.
In business or life there are very few panaceas. No cure alls. No elixirs. Well, there’s one, hard work.
Ben Horowitz wrote that when his company’s web server was too slow, he looked for a magical solution. It didn’t work. That’s when Bill Turpin told him, “there is no silver bullet that’s going to fix that. No, we are going to have to use a lot of lead bullets.”
That’s what Horowitz did, and what happened?
After nine months of hard work on an extremely rugged product cycle, we regained our product lead and eventually built a company that was worth $1.6 billion. Without the lead bullets, I suspect we would have ended at about one-tenth that value.
We make money mistakes when we start thinking silver bullets can solve lead bullet problems. Money is the one that comes to mind. Statements that begin with if only signals for wariness. They are the canary in the coal mine, warning not carbon monoxide, but a money pit.
Specifically, what money mistakes do start-ups make?
- Hiring too fast. If only we had more developers.
- Paying for expensive marketing. If only we had more customers.
- Scaling to fast. If only we could get our costs down.
- Suffering from sunk cost bias. I’ve already invested so much, there’s no turning back.