Why Startups Lose Money To Make Money
Managing runway is an art, not a science, and your results will most definitely vary
You’ve got to break a few eggs to make an omelet.
This is one of my favorite sayings, but only in an ironic sense. Like, the wife and I used to use it when one of our kids crashed a bike into a tree. Or when one of us did something overtly mean and stupid and needed an out.
In other words, it’s an apology, not a strategy. Just because you break a few eggs doesn’t mean you’re going to end up with culinary genius. Sometimes it’s just a mess you leave on the floor.
In the startup world, this kind of strategy reversal happens far too often.
You’ve got to spend money to make money.
Just because you spend money doesn’t mean you’ll make money.
So how do you turn eggs into an omelet without the mess?
I’m going to say something that’s going to get me in trouble with a certain faction of the startup ecosystem, as well as a bunch of business coaches.
Starting a company by throwing money at a brilliant idea is the absolute worst way to go about it.
There are a lot of reasons for this, here are my top 3:
- It’s the riskiest option, regardless of who is involved and the reasons why. Serial founders are not infallible, VC money is not free, and brilliant ideas are only brilliant on paper.
- It’s the most difficult. I would never recommend a first-time founder raise money pre-revenue, because the very existence of outside investment changes the trajectory and the business model in ways that only experienced founders can hope to navigate.
- It’s the least rewarding for the founders. A company’s hypothetical valuation is only somewhat narrowed in accuracy with the addition of venture money. The founder’s potential share of that hypothetical valuation will never be bigger than it is before that money comes in.
If I’m randomly poking holes in the ground, I only get so many holes before I run out of…