The flaw is unwritten step 0: The goal is to make money not run a startup.
A startup is a means to an end.
Borrowed money gets you there faster with less risk to self.
Games People Play with Cash Flow (2020)
31–40 of 91 posts
Re: Games People Play with Cash Flow (2020)
#32This is true from my very limited start up experience. Our start up was also self-funded. There were times when there was work left on the table, because we couldn't afford to hire an extra person to do the work, because we didn't have the cashflow to pay them for the first few months while they came up to speed.
Re: Games People Play with Cash Flow (2020)
#33Earlier 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.
Unless the founders own 100% of the company (which they don’t if they raised money), no, they can’t give it to employees.
Re: Games People Play with Cash Flow (2020)
#34There are a few very strange, almost unbelievable, things said about people's understanding of the issues. I can understand that startups and small business may not understand that value comes from cash flow not profits. The value of an asset is the value of the discounted cash flow. This is very basic to the theory finance, so how come banks and wall street did not know it? There has to be more to this. just being a…
I can understand that startups and small business may not understand that value comes from cash flow not profits.
This is not correct.
You can have positive cash flow over a period but still be losing money.
You can also have minimal cash flow but be wildly positive.
Cash flow is one component of value, but not the only one.
Re: Games People Play with Cash Flow (2020)
#35I had a an accounting class in college and cash flow never clicked.
I get the examples, especially the restaurant one.
But I don’t blame anyone for not being able to play cash flow games.
Re: Games People Play with Cash Flow (2020)
#36Great 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…
> cringy ask to “let us know if you think of any other features you might like”
One of the worst examples I've seen is trillion-dollar corporations like Microsoft basically putting new features to the popular vote.
You can buy from them a cloud service to the tune of a million dollars a month, but if you notice a bug, they tell you to go try and drum up votes from other users on some public forum.
It's insane, to the point where you can point out that their own product A doesn't work with their own product B where literally the only purpose of A and B is to be used in combination and they'll go tell you to upvote a "suggestion" to fix it.
The hilarity of this is that votes (or customer opinions) are hugely biased when sampled like this. If a new product isn't out of beta yet, it has very few users to vote on its features. If a some subset of a product just doesn't work, then users ignore it and then it effectively zero users, so zero votes on its issues.
Potential users cast no votes.
Re: Games People Play with Cash Flow (2020)
#37So as I understand you play these games with cash flow but ultimately the objective eventually is to still turn that into profit. After you've grown your company for several decades at aome point you stop growing and you start milking it. Similarly you want to accumulate float as a restaurant to prepay your suppliers to get better prices and hence more profit.
Re: Games People Play with Cash Flow (2020)
#38So as I understand you play these games with cash flow but ultimately the objective eventually is to still turn that into profit. After you've grown your company for several decades at aome point you stop growing and you start milking it. Similarly you want to accumulate float as a restaurant to prepay your suppliers to get better prices and hence more profit.
Actually,I don't think you ever need to be profitable, as long as you are cash flow positive, there isn't really a reason to stop the merry-go-round. It sounds weird, but if every month you collect more cash, and you pile it into future investments/raw materials, it just turns into more cash flow later.
Re: Games People Play with Cash Flow (2020)
#39So as I understand you play these games with cash flow but ultimately the objective eventually is to still turn that into profit. After you've grown your company for several decades at aome point you stop growing and you start milking it. Similarly you want to accumulate float as a restaurant to prepay your suppliers to get better prices and hence more profit.
Actually,I don't think you ever need to be profitable, as long as you are cash flow positive, there isn't really a reason to stop the merry-go-round. It sounds weird, but if every month you collect more cash, and you pile it into future investments/raw materials, it just turns into more cash flow later.
[deleted]
Re: Games People Play with Cash Flow (2020)
#40Every time I read one of these “thinking doesn’t work” blog posts I come away thinking “omg, these people just have no idea how hard it is to think”. IMHO the only situation you should be allowed to draw axioms and propositions like little balls with arrows between them is if you’re working in a formal theorem proving system. Anybody who has tried that knows that it’s just not true that the conclusion “startups shouldn’t raise money” logically follows from vague statements like “you’ll be more focused if you don’t have much money”.