8 ms·

Having a poor cash flow can signal the impending death of a company, and not preparing how to deal with it means certain failure.

coralreef 6y ago
The nature of startups (pursuit of rapid growth) is prioritizing product-market fit, not necessarily cashflow. Most startups die from failing to gain users, not necessarily because they planned expenditures poorly.
- dillonmckay 6y ago
  They fail by pursuing marketshare instead of profitability.
  - chii 6y ago
    Because the existing unicorns all have massive market share, and use that to dominate their field. VCs don't want slowly profitable companies. They want massive unicorns they can flip at IPO and get out before taking on long term business risk. It kinda sucks, because I say it's healthier to have a large number of small, competing businesses than a winner-takes-all scenario.
    - api 6y ago
      Yes and no. There is one benefit to huge winners: they have the cash to invest in R&D. I doubt Google would be building quantum chips if they didn't have a massive cash cow or two to feed that. Generally only governments and massive cash cow monopolies or near monopolies can afford to invest in basic research. That's because on any time scale shorter than a decade basic research is just setting fire to money. You need money to burn to do it.
  - api 6y ago
    To understand why, think about the exponential function. Small differences early on can have ludicrously large effects later.
- hef19898 6y ago
  If the users aren't paying enough, they still fail. If they don't have a positive cash flow, they still fail. Which reminds me of an interview with a German logistics start-up recently. They are funded by 100 million €, a lot of cash for what is basically a simple forwarder. When the co-founder said, that they don't see any risk for them, because their run-way is somewhere between 12 and 18 months I was shocked They have customers, they charge a margin for every transport. Yet they seem not to be cash positive. And their burn rate is at the very least somewhere around 2 million per months. Coming from that industry, I have no idea how that is even remotely possible. If the crisis would have hit 6 months later, their situation would have been a lot different. And that during a period where everyone is scrambling to keep transportation and logistics running.

coralreef 6y ago

The nature of startups (pursuit of rapid growth) is prioritizing product-market fit, not necessarily cashflow. Most startups die from failing to gain users, not necessarily because they planned expenditures poorly.

dillonmckay 6y ago
They fail by pursuing marketshare instead of profitability.
- chii 6y ago
  Because the existing unicorns all have massive market share, and use that to dominate their field. VCs don't want slowly profitable companies. They want massive unicorns they can flip at IPO and get out before taking on long term business risk. It kinda sucks, because I say it's healthier to have a large number of small, competing businesses than a winner-takes-all scenario.
  - api 6y ago
    Yes and no. There is one benefit to huge winners: they have the cash to invest in R&D. I doubt Google would be building quantum chips if they didn't have a massive cash cow or two to feed that. Generally only governments and massive cash cow monopolies or near monopolies can afford to invest in basic research. That's because on any time scale shorter than a decade basic research is just setting fire to money. You need money to burn to do it.
- api 6y ago
  To understand why, think about the exponential function. Small differences early on can have ludicrously large effects later.
hef19898 6y ago
If the users aren't paying enough, they still fail. If they don't have a positive cash flow, they still fail. Which reminds me of an interview with a German logistics start-up recently. They are funded by 100 million €, a lot of cash for what is basically a simple forwarder. When the co-founder said, that they don't see any risk for them, because their run-way is somewhere between 12 and 18 months I was shocked They have customers, they charge a margin for every transport. Yet they seem not to be cash positive. And their burn rate is at the very least somewhere around 2 million per months. Coming from that industry, I have no idea how that is even remotely possible. If the crisis would have hit 6 months later, their situation would have been a lot different. And that during a period where everyone is scrambling to keep transportation and logistics running.