It’s funny how new startup founders tend to turn unlikely desires into certain facts. Frequently, they’re over-optimistic about a bunch of things, including their startup’s cash inflows.
That reminds me of an old movie called “National Lampoon’s Christmas Vacation” (1989). In the movie, Clark Griswold (Chevy Chase) is a traditional late 90s father/husband who just wants to provide his family with an amazing Christmas trip. Unfortunately for Clark—and fortunately for us—the trip turns into a super-funny chaotic nightmare.
But, besides all the mess of the trip, Mr. Griswold does something that I want you to avoid with all your forces: counting on money that isn’t certain yet.
That’s exactly what Clark does about his Christmas bonus. He counts so much on that money that he acts as if it was already in his bank account. Well, he eventually discovers that… [spoiler alert] he won’t receive it that year.
But how exactly does it relate to your early-stage startup dream? Well, you may be acting like Mr. Griswold, right now. But instead of a Christmas bonus, you’re counting on the revenue coming from your future clients or new funds coming from future investors.
Counting on these two sources of cash inflow may completely leave you unguarded regarding how to spend your money. It’s instinctive: if you have more money to spend, you’ll find ways of spending it. Faster.
The problem becomes even worse when you start spending imaginary money that depends on non-validated assumptions (i.e., guesses).
The Worst-Case Cash Scenario
Now, let’s suppose the perfect storm hit your startup. That means you won’t see any new cash coming from customers or investors.
In this challenging scenario, what would you do about your startup’s cash?
Okay, I know you believe in your product and how customers will be crazy about it. And I also know you believe investors will be awed by your amazing idea and will give you their ‘yeses’ for sure.
But, being a smart founder is to simply treat those things as “unlikely to happen in the near future”.
Again, I’m not saying you should quit any effort to get early revenue or raise funds. However, while they didn’t happen yet, treat them as if they will never exist.
When you accept the worst-case cash scenario you force yourself to work with the money you have now. Suddenly, you understand you must lead the validation process effectively—by focusing on the riskiest assumptions— and efficiently—by spending just the necessary to test and learn.
Not only will this mindset shift make you more prepared to face the worst-case cash scenario, but it will also help you avoid it. It’s crazy, I know. But follow my thoughts…
When you consider you won’t have customers in the short term, you force yourself to be more focused on validation. You must find ways to test, learn and validate your hypothesis before your startup’s cash ends. This super-focus on validation will increase your chances of building a great product, which, in its turn, will increase your chances of getting customers.
At the same time, when you don’t count on investors’ money, you must become more diligent about your startup’s current cash. You’ll need ways of reducing your burn rate and, consequently, increasing your runway. Well, this narrative is music for investors’ ears, and it’ll make them trustful about you. In this game, more trust equals more chances to succeed.
Hence, if you want to increase your chances of success, stop counting on uncertain cash inflows.
Now, tell me, what’s the best you can do with your current startup’s available cash?
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