Article: Why too much money is worse than too little
Guy Kawasaki explains why too much money can be worse for entrepreneurs than too little.
The reasons are:
- The more money you have, the more money you spend.
- You start to feel more secure than you should
- You start hiring people that have a great CV rather than the ability to build a company
- You start hiring too expensive people
- You start spending on expensive freelancers and consultants only to speed things up
- Entrepreneurship is not serial (get money – build company – sell company) but you rather have to handle many things in parallel.
The two lessons that I take out of this article and with which totally agree with as I have seen/lived them myself is:
Stay cheap!
Even if you succeed to get significant funding from great investors, do not stop thinking about every dime you spend until you are profitable. Do not make the mistake to calculate your cash reserve divided by your current cash burn to come up with a so-called cash-reach that gives you the feeling of being on the safe side. As soon as you feel safe, you start spending even more money and your cash-reach goes directly to zero. Stay cheap, do not pay too big salaries, do marketing campaigns that really pay off and if you want to try things, do it on a small scale and analyze. Stay cheap!
Do not forget your product while searching for funding!
Receiving funding from institutional investors takes time, time, and time. If you want to it at least in a semi-professionel manner your management team will have plenty of work writing business plans, doing financial forecasts, negotiating contracts, signing contracts (yes, that takes work as well or did you ever see a contract without appendices?). As Guy figures out in his article, entrepreneurship is not a serial process. You do not get funding, then build the product, then get the revenues and then sell the company. You actually do everything in parallel. So while you meet with investors, make sure that you get your product, and therefore your company, right. Do not lose focus.
The article can be found at: http://www.openforum.com/idea-hub/topics/the-world/article/why-too-much-money-is-worse-than-too-little-guy-kawasaki