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Games People Play with Cash Flow (2020)

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Re: Games People Play with Cash Flow (2020)

#11

Post by mewpmewp2 »

EGreg wrote: post #3
bruce511 wrote: post #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 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…

It depends on the product. The longer you have to push for the profit the hogher the reward sonce everything easy is already done. Things that are left to do have higher and hogher barrier of entry and depending on the business it will take a lot more time and up front capital to have a chance at profitability.

Re: Games People Play with Cash Flow (2020)

#12

Post by fragmede »

lifeisstillgood wrote: post #5

The 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 ba…

being hungry means people are driven to make decisions, just not necessarily good ones. they're after the drive, and hopefully acumen, but drive is more important than acumen, they hope.

Re: Games People Play with Cash Flow (2020)

#13

Post by ftlio »

EGreg wrote: post #3
bruce511 wrote: post #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 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…

VCs with board seats vs you are trying to run your company with all its intricacies while VCs are often managing you as yet-another-in-some-tranche.

Re: Games People Play with Cash Flow (2020)

#14

Post by langcss »

rented_mule wrote: post #9
EGreg wrote: post #3

Earlier 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…

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…

That makes no sense to me. They could give the company to the employees instead right? Unless they wanted the code or something.

Re: Games People Play with Cash Flow (2020)

#15

Post by EGreg »

fragmede wrote: post #10
EGreg wrote: post #3

Earlier 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…

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.

Basecamp took no VC money

(Except for Bezos Expeditions many years into it)

Re: Games People Play with Cash Flow (2020)

#16

Post by nine_k »

langcss wrote: post #14
rented_mule wrote: post #9

Earlier quoted context omitted.

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…

That makes no sense to me. They could give the company to the employees instead right? Unless they wanted the code or something.

If the company was seen as a competitors to Yahoo, it looked reasonable to shut it down. The VCs invested in several companies that had a promising direction, then shut down all but one that was growing fastest and grew biggest.

Re: Games People Play with Cash Flow (2020)

#17

Post by actionfromafar »

langcss wrote: post #14
rented_mule wrote: post #9

Earlier quoted context omitted.

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…

That makes no sense to me. They could give the company to the employees instead right? Unless they wanted the code or something.

Strangely, transferring a company can be more complicated if you care about liabilities, contracts, assets, non-tangible and otherwise.

That flavour of VCs don’t have time nor care. Maybe they had several more companies to close that day.

Re: Games People Play with Cash Flow (2020)

#18

Post by IneffablePigeon »

ftlio wrote: post #6

Great 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 n…

Yes. What you ask is just as important as whether you’re talking to your customers. The Mom Test is the best book on this.

Re: Games People Play with Cash Flow (2020)

#19

Post by lifeisstillgood »

fragmede wrote: post #12
lifeisstillgood wrote: post #5

The 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 ba…

being hungry means people are driven to make decisions, just not necessarily good ones. they're after the drive, and hopefully acumen, but drive is more important than acumen, they hope.

Is that the “VCs have never been hungry, met human beings or read any history” theory? :-)

Re: Games People Play with Cash Flow (2020)

#20

Post by reducesuffering »

IneffablePigeon wrote: post #18
ftlio wrote: post #6

Great 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 n…

Yes. What you ask is just as important as whether you’re talking to your customers. The Mom Test is the best book on this.

The Mom Test also talks about getting the problems from the customer but owning the solution how it solves the problems they have.
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