Cash management for early stage startups | Hacker News Reader

Cash management for early stage startups

codingvc.com

65 pointslpolovets13 comments

> Most startups fail because they run out of money.

This is one of those pointlessly technical truisms. Well, yeah, of course - it's not just startups; most companies of any kind fail because they run out of money. For businesses, that's really what failure is. You might have some regulatory or personal circumstance that causes a business to shut down before it runs out of money, but usually it's because your business was bringing in less than it was spending and you ran out of reserves before reversing that trend.

It's like saying that most sports teams lose games because they score fewer points than their opponents; sure, you might have the rare case where too many of your players foul out and you can't field a big enough team, but usually it's the points thing.

I think it can be more subtle than that. In many cases, it's not particularly hard to get money if you have traction and a pathway to scale and profitability. What's actually hard, even with money (again almost a pointless technical truism) is to make something that people want. I've been in multiple situations, including my own past business where we've got the money to do something (anything) but can't seem to get traction in a way that will allow the money to be deployed usefully. So if we just keep paying salaries and spending it on stuff we don't expect to work, yeah it's possible to fail by running out, but I wouldn't call that the reason. It's actually kind of an embarrassing way to fail, which is why I expect it's more common to just say you ran out of money.

Deploying money in a way that generates returns is way harder than getting it.

It's supposed to be a teachable shorthand for the idea that you are more likely to kill your startup by chasing enough growth to outrun spending than you are to improve your chances of success. That's a meaningful evaluation, not a truism.

Using your sports analogy, it would be like a coach getting the attention of a bunch of hotshots to improve defense by telling them they need their opponents to score fewer points to win.

Leave it to HN to bicker over the first sentence rather than engaging with the (useful, IMHO) advice in the rest of the article.

Exactly. Most startups fail well before they run out of money. The money just keeps them on life support for a little bit longer.

Cash management is obviously important but it isn't going to save your startup. If there isn't product market fit, competent leadership, good engineering, marketing, sales and the rest then you are done either way.

Eh, while you're right, there's something to be said for focusing on the symptoms rather than the underlying condition.

It's obviously problematic, but if the problems introduced by not solving the underlying issue are better than the problems you're currently dealing with, it might be a better way to move forward for awhile.

At the very least it could help refocus a struggling founder; stop writing so many blog posts and start taking direct steps to address the biggest threat, running out of money.

It’s only a truism if focusing on the cash wasn’t an area you could put focus on. Plenty of potentially successful startups fail because they manage their cash poorly, even when they have a product people want.

As you can see from the article, you can put a specific focus on improving your cash position making it less likely to run out of money.

Most people die because their heart stops beating.

Now that's the kind of wrong causation that follows from using bad analogies :) most people’s hearts stop beating once they die, but there’s a myriad of reasons why they die in the first place - only some of which being a stopping heart.

VCs, who on the whole underperform the market and fail to provide returns to their limited partners and investors, seem to think that as a group that have the best insight and feedback in the industry. Singularly, they believe they are the smartest and most profound people on the planet. This despite investing in companies that mostly go under, have down rounds, or themselves face disappearance. All the feedback in this article is trite, obvious, and easy to say in hindsight. Where were these smart VCs in 2021 when it was all about burn, burn, burn and spend, spend, spend? How smart it is to say that if you have 12 months of runway, cutting 50% of costs saves you a year. Where was that advice a year ago?

VCs are money managers, managing mostly other people's money, investing in startups primarily as financial products, not as long-term business concerns. Take the advice with a grain of hindsight is 20/20 salt.

The net sum of this wise money manager's feedback on how to "manage cash for early stage startups": raise more money (if you can), spend less money (if you can), make more money (if you can), and run your company better (if you can). All that without a fancy four-letter framework.

How can 71% startups fail from running out of time and money[0] but 65% of startups fail from cofounder disagreements[1]?

Y'all ever think these numbers are useless and p-hacked to drive a point?

[0]: https://www.codingvc.com/p/cash-management-for-early-stage-s...

[1]: https://hbr.org/2022/04/how-cofounders-can-prevent-their-rel...

65% of startups fail when the cofounders have a fight and one of them absconds with the money; the remaining 6% run out of money organically.

There are only 2 hard problems in computer programming: naming, cash management, and off by one errors.

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