Startups – Mo Money Mo Problems

For startups, there can be no greater problem than lack of money… except maybe too much money.

Biggy Smalls, AKA Notorious B.I.G. seemed to sum it up well in his opus, Mo Money Mo Problems,

“I don’t know what they want from me, It’s like the more money we come across, The more problems we see.” 

The other Notorious character, Notorious R.B.G., not to be confused with Biggy, Supreme Court Justice Ruth Bader Ginsberg weighed in with similar thoughts,

I think the notion that we have all the democracy that money can buy strays so far from what our democracy is supposed to be.”  

When building a company, too much money can be a problem. Raise $6 million from a Venture Capitalist and you think they want you to sit on the cash? No, they want you to spend it in the next 18 months. Then it’s just like Will Rogers said,

“Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.”

When you’re a 12 person company, it isn’t easy to spend money on things you need that positively affect the growth of your company without waste. It’s difficult to hire fast and well. It’s difficult to choose what marketing campaigns are going to get you the most bang for your buck. Yet your investors want you to deploy their cash quickly. In 18 months, when the money’s spent, you will go hat in hand to the VCs and give up more control of your company.

“Spend more of yo VC money you get mo problems” – Mr. Cranky

So if you’re like Keanu Reeves, and you feel that,

“Money doesn’t mean anything to me. I’ve made a lot of money, but I want to enjoy life and not stress myself building my bank account. I give lots away and live simply, mostly out of a suitcase in hotels. We all know that good health is much more important.”

You may run into the opposite issue.

The issue with not having enough money often forces a company to be opportunistic instead of disciplined and strategically focused. When a founder is more worried about putting food on the families table than sticking to the strategic product plan, an offer to apply resources to deliver a customized one-off, variation of your product that does not move the company any closer to obtaining mass-market customer market fit is too attractive to pass up. This is one of the reasons services companies have so much trouble transitioning to a product company. There is a natural tension between opportunistic revenue and strategic plans that produce product-market fit and scalable revenue traction.

But Glen, you need big bucks to do serious R&D. That’s not true according to one R&D expert,

“Innovation has nothing to do with how many R & D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R & D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.” – Steve Jobs

So think about where you are? Do you have too much or are you running on fumes? Should you raise money and join the “mo money, mo problems” crowd or are you in an endless loop of chasing cash that moves you further and further away from creating a scalable product company? What are you going to do about that?

Corporate graveyards are littered with companies that died from an overabundance of cash disproving Mrs. Wallis Simpson opinion when she said,

“You can never be too rich or too thin.”  

Want to talk corporate finance strategy? Is it time to raise money? Should you raise money? How do you raise money? Schedule a complimentary one-hour, online, coaching session now by pressing that little reed button down there now.