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Keeping an Eye on Cash

If I were to ask any founder what the most important thing is to assure their startup’s success, I am fairly certain I will get a variety of answers. Some will say the technology. Others may declare the value proposition. Many will tell me that building the right team is most important. And still, a few may emphasise that securing the intellectual property is of paramount importance. And, of course, there will be those who insist that ensuring the cash flow is the foundation that will keep the business standing.

At the risk of crossing many founders, I will venture to take this latter position. In my opinion, keeping an eye on cash needs to be the first thing that a startup gets right.

Critical Questions

Business planning guides often list down important questions for startups to ask in order to get clarity about the venture and provide focus on what needs to be done. These questions include:

  • What problem are you solving?
  • What value are you providing?
  • Is anyone else doing what you are planning to do?
  • What’s your “special sauce”?
  • Do you have expertise to do what you plan to do?
  • How much money do you need to get started?

Do these questions sound familiar? Of course, they do! You’ve probably been asked the very same ones a thousand times before, by partners, investors, bankers, prospective clients, and anyone else who cared to listen to your pitch. And rightly so because these are quite important questions to ask.

And again, not to overplay being the devil’s advocate in this, but I think that these questions matter only within the context of setting up and understanding what I think are the two most critical questions for founders to answer.

  1. When will you run out of cash?
  2. Will you be able to raise funds in time to keep your business afloat?

If you can’t answer these two questions, or if the answers you get send chills down your spine and bring you to the brink of despair, then you may be in a bit of a bind. And you should start doing things that will let you get to the favourable answers.

Leading into Action

The benefit that these two questions gives is not simply about knowing your cash position at any point in time. Rather, it provides you with focus and clarity. Focus on the important details that need to be addressed that matter to those from whom you seek funding. And clarity for executing these details to the satisfaction of those who may consider funding you. Knowing when your funds will run out gives you a sense of urgency and the motivation to act on the matter. Keeping the investors’ interests clear in your mind gives you a set of tangible milestones to accomplish toward the ultimate goal of securing the prize: funding.

As far as investors are concerned, there are two things that concern them.

  • Showing product-market fit; and
  • Demonstrating that your business growth model is repeatable, scalable, and (ultimately) profitable.

That is all that matters to them, at least during these early stages of your startup. And so, your mission statement will be to provide evidence that your startup can deliver on these two things.

And Now, the Why

Securing funds is crucial to your startup’s success. In realistic terms, it’s the fuel that will drive your business forward. Just think, the most modern, cutting edge, state of the art, high performance concept car won’t get you anywhere without petrol to keep it running. Without fuel, it’s nothing but an expensive conversation piece. Without funding, your startup business will be just that – an expensive conversation topic. And it’s not the kind of conversation you’ll want about your company, surely.

Second, investors are always keen on ensuring a return on their investment. They may not say it or show it, but they really look at your business as a potential cash machine. And rightly so because that is the nature of investment. No one invests out of the kindness of their heart. Investment is always tied to the perceived return. And so, you must be able to align your startup to the expectations and realities of the investors. You need to speak to them in their language: growth, scalability, and profitability.

Written by our Head of People, Mustafa Shreet.

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