Cash Management is the key to unlocking your startup’s potential. And the mission of wisely managing your cash is translated into 2 powerful orders: Prioritize and Optimize.
To prioritize is to be effective. To optimize is to be efficient.
But, wait. What exactly do these words mean? What’s the difference between one and the other?
Let the brilliant mind of Peter Drucker teach us:
Efficiency Is Concerned With Doing Things Right. Effectiveness Is Doing the Right Things
Peter Drucker
So, when you prioritize, you’re focused on what you want to achieve. When you optimize, you’re focused on how you want to achieve it.
Now, let me show how to prioritize and optimize your cash allocation, in the early days of your startup.
Prioritize
Being effective is the art of prioritizing the right goals and tasks. But what are right goals or right tasks for an early-stage startup?
For any startup in the early stage, the main goal is validation.
Hence, whenever you allocate your cash to tasks related to validation, you’re being effective. Period.
So, whenever deciding about using your startup’s cash, ask yourself:
Will this cash commitment help me VALIDATE my startup hypothesis?
That’s it. Prioritize validation.
Among validation items, you may find customer interviews, prototypes, MVPs, landing pages, developers, designers, marketing personnel and ads (when focused on validation), software, and services.
Among non-validation items, you have rent, accountants, lawyers, fundraising expenses, overhead costs, administrative services, software, and personnel, and so on…
For the latter, your mission is to ask an additional question…
Do I really need to spend money on these items?
The truth is: Before getting any traction, it’s very likely that the answer is ‘no’. That means, if something is not directly contributing to validation, you probably don’t need it.
But the nice office I was intending to rent? Work remotely.
What about the subscription for that administrative software? Leave it for later.
And the team members I need to hire? Validate first, hire later.
Don’t add complexity, before getting traction.
Optimize
You must also learn how to optimize the items you prioritized.
That means for the items you decided to allocate cash, ask yourself…
How much cash do I really need to allocate to this item?
For example, for your customer interviews (validation item), you may choose virtual meetings rather than in-loco ones. You save money, and you achieve the same results.
Another example comes from your MVP features. Is building an MVP effective for validation? Sure. But, what are the features required for the validation you’re looking for? Yep. The minimum viable product (efficient and effective!).
The same rationale goes for your non-validation items.
Let’s suppose you decided to pay for rent. The “rent” item won’t help you directly with validation. But, you’ve decided to have a place to gather your partners. Okay, it’s your call.
Now, think efficiently about it. What’s the minimum rent to achieve your goal (of having a place to gather the team)?
Prioritize and Optimize
So, to wisely manage your cash in the early stage:
- Prioritize spending your cash on items that will directly help you with validation.
- Eliminate unnecessary items.
- Optimize your cash allocation, by minimizing the amount you spend on each item.
Follow the steps, diligently.
FREE CASH PLAN (EXCEL MODEL) FOR EARLY-STAGE STARTUPS
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