Games People Play with Cash Flow (2020)
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Games People Play with Cash Flow (2020)
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Re: Games People Play with Cash Flow (2020)
#2>> If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion.
While cash flow comes into it, I think the primary axiom which is different (between VC and bootstrap) is the definition of success.
A bootstrap company is successful if it makes a profit, and remains in business. Some growth is nice, but there are plenty of one-man / familiy businesses to show that growth is not required.
By contrast a successful VC business goes out of business early, or with (these days) a multi-billion $ exit. Like a company that exits with a $50 million OVER investment is a failure.
If you want to win huge or nothing, then VC is the path to that. As a founder if you want to retire with money in the bank, then VC is "probably" not the right choice.
Of course the optimum might be a mix- take VC money till you're 30, if it doesn't work out you still have time to build a nest-egg the old fashioned way.
Re: Games People Play with Cash Flow (2020)
#3>> If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion. While cash flow comes into it, I think the primary axiom which is different (between VC and bootstrap) is the definition of success. A bootstrap company is successful if it makes a profit, and remains in business. Some growth is nice, but there are plenty of one-man / familiy businesses to show that growth is not require…
I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace?
Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it?
The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars to grow your startup, and you still can't become profitable after that, then something's wrong with yoru business acumen, in my opinion. Anyone with a few million dollars is able to hire people and create a profitable product. What happens if a company pivots to being profitable "too early", what can the VCs do?
Re: Games People Play with Cash Flow (2020)
#4>> If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion. While cash flow comes into it, I think the primary axiom which is different (between VC and bootstrap) is the definition of success. A bootstrap company is successful if it makes a profit, and remains in business. Some growth is nice, but there are plenty of one-man / familiy businesses to show that growth is not require…
I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it? The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars…
That is the ideal strategy, but easier said than done. Once you’ve got that cash it’s very very hard to act like you don’t have it… especially when everybody knows you do.
Re: Games People Play with Cash Flow (2020)
#5The flaw is in the step 2. - raising capital reduces skin in the game which reduces “incentive”. Honestly heard this before in things like “don’t allow founders to cash out in early rounds they won’t be hungry”. This is akin to “if you take the shackles off your slaves they will run away”
Taking on capital reduces risk for the founder which makes it more likely they will take better long term decisions. There is a balance obviously - if you give me a billion dollars for my pitchdeck I will certainly feel reduced risk but that may be offset by the risk the owners of the billion now take on.
But yeah, the flaw is thinking hungry people make good long term decisions
Re: Games People Play with Cash Flow (2020)
#6Great read, especially from the perspective of just trying to understand why people overfit certain thinking to certain problems.
My startups perspective: I think it’s hard for people to understand the subtlety from all the memes and hearsay.
We hear that you need to talk to your users to understand what to build, but I’ve seen this fall flat on its face and lead to extreme confusion, several times now, when you’re not talking to your users as a matter of observing your product/business model against reality to then update the axiomatic thinking that (hopefully) lead you to its current iteration.
I’ve seen this play out as a cringy ask to “let us know if you think of any other features you might like” met with puckered faces from customers that essentially said “or how about not because my job isn’t to build your product?”
This is Henry Ford / Steve Jobs talking about faster horses. You’re not asking your customers what to build. You’re asking them to help you understand the reality against which your logic plays.
Then there’s the opposite, where a business marches forward because some axiomatic thinking has determined that the macro environment should support it, not updating itself against a pending catastrophe in cash flows that leads to cuts that further undermine its ability to exist even within its own framework.
Design and test from first principles, but operate for the pain of as many rounds as possible. Maybe one day you can truly optimize and it won’t hurt as much.
Re: Games People Play with Cash Flow (2020)
#7>> If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion. While cash flow comes into it, I think the primary axiom which is different (between VC and bootstrap) is the definition of success. A bootstrap company is successful if it makes a profit, and remains in business. Some growth is nice, but there are plenty of one-man / familiy businesses to show that growth is not require…
I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it? The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars…
Huh, I’ve always assumed it has to do with some about of “de jure” control over the board that the VC assumes when the capital is raised. If they don’t like the founders growth strategy , can’t they just throw them out? Or is that not how it works?
Re: Games People Play with Cash Flow (2020)
#8Earlier quoted context omitted.
I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it? The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars…
Huh, I’ve always assumed it has to do with some about of “de jure” control over the board that the VC assumes when the capital is raised. If they don’t like the founders growth strategy , can’t they just throw them out? Or is that not how it works?
I guess it mus be something like this, I don't think someone would invest a rather large sum without having something like this in place
Re: Games People Play with Cash Flow (2020)
#9>> If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion. While cash flow comes into it, I think the primary axiom which is different (between VC and bootstrap) is the definition of success. A bootstrap company is successful if it makes a profit, and remains in business. Some growth is nice, but there are plenty of one-man / familiy businesses to show that growth is not require…
I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it? The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars…
During the dot com boom / crash, I worked at a profitable, VC funded startup. I don't know the legal / financial mechanism by which they did it, but our VCs shut us down six months after the crash. They wanted to put all of their attention into the other company in the portfolio that survived the crash, Yahoo, because their revenue was already far higher than ours could ever be.
We were profitable (100s of K per year on revenue of a few million a year - small potatoes). Those numbers were growing steadily, even after the crash, but they weren't going to explode. We were given 30 minutes to collect our things and leave the building, but I suspect our founders knew a day or two earlier. They made a lunch reservation for all the employees that same day so we could say goodbye to each other, but we had to pay for it ourselves. It was a very strange experience.
Re: Games People Play with Cash Flow (2020)
#10>> If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion. While cash flow comes into it, I think the primary axiom which is different (between VC and bootstrap) is the definition of success. A bootstrap company is successful if it makes a profit, and remains in business. Some growth is nice, but there are plenty of one-man / familiy businesses to show that growth is not require…
I never understood, what is to prevent a startup from raising a VC seed round, then a series A round, and then simply grow at its own pace? Is there something in the SAFE note or whatever, that says the startup MUST fail fast, go big or go home? It can grow methodically, can't it? The closest explanation I've ever heard is that VCs do "signaling" in future rounds... but listen, if you have a few extra million dollars…
Given that Wistia, MailChimp, Patagonia, and GitHub, among others did the seed/series A, profitability thing you suggest, there are other mechanics at play here. Specifically, as the article raises, profitability as in net revenue isn't everything.
edit: swapped Basecamp for Wistia, because Basecamp did not take VC money.