Cash Flow and Destiny
bhorowitz.com
Cash Flow and Destiny
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Re: Cash Flow and Destiny
#2This is why it always feels funky to me for companies to raise money at insanely large valuations. To me it should only be enough money to cover expenses (employees, office space if necessary, business deals, salary for the founders, r&d costs) for just long enough to where you can afford those things without outside money after. For instance, if you do everything by the business plan, and your business plan says you'll be profitable by the end of the year, and that profitability is enough to cover the monthly costs plus some - then don't raise after that year. You're good, right? This is why I think it's good to sell something if you're a business, and not just give free and then bank on ads or an exit later (which then means ads get placed on your product, or it starts being for sale and some other company gets the money for those sales).
Tell me I am or am not crazy in this philosophy.
Re: Cash Flow and Destiny
#3Cash means controlling your own destiny.
This is as important in your personal finances as it is in business. With enough cash, you can decide for yourself what you want to do and when you want to do it.
I call it buying my time, but in reality, you are buying your freedom to choose. For both people and businesses, it is about getting to the point where your income, assets, and liabilities are in line such that you have a safe surplus.
If you look at the most successful companies or people, they tend to have a significant reserve and that allows them to make choices. Without that reserve, many choices go away. With no reserve, choice almost entirely disappears.
If your goal is freedom, you need to buy that freedom.
Re: Cash Flow and Destiny
#4This is why it always feels funky to me for companies to raise money at insanely large valuations. To me it should only be enough money to cover expenses (employees, office space if necessary, business deals, salary for the founders, r&d costs) for just long enough to where you can afford those things without outside money after. For instance, if you do everything by the business plan, and your business plan says you…
I totally agree with you :) but I'm going to play devil's advocate and tell you why I think "those" companies do it that way.
1. Getting tons of money helps the company grow/scale much faster, and gives them money to market and sell their product
2. Getting a crazy high valuation lets them get that money in #1 from investors without diluting ownership.
3. The valuation in #2 means that in case of an exit (M&A or IPO), the investors get the most returns from their investment.
So while it all obviously points at a self-created bubble, it seems to me that all the parties (founders, company, investors) want to do this to grow/exit fastest.
Re: Cash Flow and Destiny
#5This is why it always feels funky to me for companies to raise money at insanely large valuations. To me it should only be enough money to cover expenses (employees, office space if necessary, business deals, salary for the founders, r&d costs) for just long enough to where you can afford those things without outside money after. For instance, if you do everything by the business plan, and your business plan says you…
I think you are conflating two separate, but related issues:
1) Raising large sums of money, when is it right?
2) Having a business model.
For the business model, yes, you should have one and you should put considerable thought into it. You should always test it's validity given the market at that moment in time or in the foreseeable future. That said, if you are Twitter, you are affecting fundamental changes in communication and your impact is evident on the societal level. At that level of impact, you have the luxury and duty to take time to really work out the kinks from your business model.
Now, if you are not Twitter, raising money during a bubble or looser years and using it wisely could be the difference between life or death (or layoffs) during not so good years.
Having money in the bank is powerful, whether you are putting it there or your investors are. Just be careful not to have such a high burn rate that you cannot hope to cover it with your own revenues should push come to shove.
Re: Cash Flow and Destiny
#6Cash means controlling your own destiny. This is as important in your personal finances as it is in business. With enough cash, you can decide for yourself what you want to do and when you want to do it. I call it buying my time, but in reality, you are buying your freedom to choose. For both people and businesses, it is about getting to the point where your income, assets, and liabilities are in line such that you h…
Oh yes. We do live in slavery. Money is the only key to our chains.
Re: Cash Flow and Destiny
#7As so many things do, this reminds me of one of the more insightful books I've ever read: http://www.amazon.com/Doing-Capitalism-Innovation-Economy-Sp...
Among many other things, the author, Bill Janeway, stresses that in his decades of experience in the venture investment world the only reliable rule he knows in that world is that cash and control are the only hedges against the inherent uncertainty of new ventures.
Re: Cash Flow and Destiny
#8This is why it always feels funky to me for companies to raise money at insanely large valuations. To me it should only be enough money to cover expenses (employees, office space if necessary, business deals, salary for the founders, r&d costs) for just long enough to where you can afford those things without outside money after. For instance, if you do everything by the business plan, and your business plan says you…
Joel Spolsky had an excellent post on the two models, Ben and Jerry's vs Amazon, and when each is appropriate:
Re: Cash Flow and Destiny
#9[deleted]
Re: Cash Flow and Destiny
#10Cash means controlling your own destiny. This is as important in your personal finances as it is in business. With enough cash, you can decide for yourself what you want to do and when you want to do it. I call it buying my time, but in reality, you are buying your freedom to choose. For both people and businesses, it is about getting to the point where your income, assets, and liabilities are in line such that you h…
I'm surprised this post received relatively few votes and discussion vs. the value I see in its message. Anecdotally, in addition to hiring and keeping top people this is the only other thing I've been able to identify that successful founders whom I know, do very well.
This has been my focus for the last two years, both personally and in business. It's paying dividends in both.
This, among others, gives me the impression that among VCs A16Z is the Founder's VC. The drive for profits and ruling by the numbers (favoured by accountants and investors) seems to be tempered by a very real grip and understanding of the reality a founder and their team faces.
You must have the ability to make decisions; cash is king.