Last month we talked about starting a business on very limited resources. This time, I would like to think about the problem of having too much time or money.
Having too many resources can distract you. In contrast, when money is tight, you’re focused on just doing what is truly important. In any start up situation, you should only care about discovering two things:
- What customers want and your capacity to deliver it.
- How to get it into the customer’s hands at a cost that makes a profit.
Cracking the above two points and then becoming cashflow positive is the surest route to business success. Failing to focus on this is the surest route to failure, whatever the bank balance. I speak as someone who has not only started their own company, but who has invested in a variety of start ups, some with tremendous success, and one that has been an abject failure.
Two of my investments (actually the ones with the most potential and both of whom have raised millions), are also teetering on the brink of failure. The reason? Too much money, with one having raised more than £10m over several funding rounds. Having too much money encouraged both to try and tackle multiple markets before they had fully established themselves in one. It made them feel that becoming cash positive was an optional extra. After all, they could always raise more capital. And they seem to pay enormous salaries, far above what I pay for higher caliber staff in my own business.
In my opinion the lesson is simple. Focus your efforts on providing what is wanted. Then deliver it at a profit. Don’t do anything else. Becoming profitable as fast as possible makes long term success much more likely.