In case you haven’t heard, this is it. It’s the downturn, and we’re in it. The graveyard of unicorns and startups in general is going to be filled up with Medium posts about “how we failed.” If you don’t believe me, check out the numerous posts about how difficult fundraising is getting: Read this and this, and also this or this. Not to mention this and this and this (plus this or this or this). Convinced yet? Still, all of these luminaries, who, rightly, get a lot of respect from the tech community, are skipping over one key point: You probably shouldn’t even be trying to get money from investors right now.
It’s kind of like listening to a pusher selling drugs to an addict: You need another dose, quick before my prices increase. Oh wait, my cash already got more expensive. Still, you need just one. more. dose. Okay, maybe that’s a bit too strong of a metaphor, but you get the idea. VCs are selling founders their dollars, and it’s noisy and competitive out there, so they’re upping their game. Still, fundraising should be about opportunity, not need. This is the other side to the story that many of the more seasoned founders understand very well: In today’s playground, it’s easier and faster to get capital from customers rather than investors.
Think about it for a second: On one side, the advice you get is to start talking with VCs early (because, you know, raising takes 3–6 months generally and, in this cashpocalypse, even longer), and you should talk with 10X more VCs than before (because, you know, everyone will be worried about their portfolio and will be on the wait-and-see side), and you will be smart to raise less (because, you know, terms will be worse compared to just 6 months ago, so more expensive in terms of equity). But what if you ignore that advice?
What if you spent your time with people who actually love you, like — gasp — your customers? Because, here’s the thing: If you have 6–9–12 months of runway and you’re generating revenue, even if not enough to be profitable just yet, it may be worth doubling down on it instead of betting on a highly unlikely outcome from fundraising.
Here’s my point: If you’re generating $25,000 — $250,000 per month but you’re not profitable yet, that’s something. More than that, it’s actually the best asset you have in your hands. Your customers, together with your time and your team.
When it comes to cash management, the general advice is: reduce burn, fire people, spend fewer marketing dollars. But the company’s balance sheet is not made only by the bottom line, it is cash on hand plus revenue minus expenses. You want to increase the cash on hand? Sure, you fundraise. You want to decrease expenses? Fire people or cut marketing. But what about the revenue part?
Let me say it again, and you should try saying it out loud too; you’ll realize how powerful this is: Customers care about you, because they need you. If you care about them too, it’s going to be easier and faster to get to profitability through increased revenue rather than through a fundraise.
So, assuming of course that you have an actual business — let’s say revenue at least 50–65% of your burn rate, here are some ideas for you. These are things that worked for us (and, yes, we’re profitable):
1. Model a f*cking financial plan. I speak with other founders all the time, and their version of the story is “I’ve got $X in the bank and I’m spending $Y per month, so I’ve got X/Y months of runway,” and then the following thought is, “If I want to have 18 months of runway, I need this amount of new cash.” Then I ask how much revenue are they pulling, and they say, “Oh, I’m doing this many thousands / tens of thousands,” and it turns out that by factoring that revenue in plus some reasonable growth, they only need 1/3 of the cash they thought they did (if not none at all). TL;DR? Yes, revenue is cash too — actually the best quality. Never forget it.
2. Speak with your top 10 customers. Look at your customer base, pick up the phone, and talk to the top 10 — the ones who are most engaged, the heaviest users of your product. They will be happy to talk to you. Your questions are going to be a very simple: 1) What can I do for you that I’m not already doing? 2) How valuable would that be to you? 3) How much would you be willing to pay for that? Look at the commonalities you find among the answers. Then also look at what’s consistent with the direction you want to move the company in. Finally, go back to them and say, “What you asked for is going to be ready in X weeks. I’ll give you 50% off the full annual price if you pay right now.” Boom.
3. Look at your benchmarks. Founders on average are sooo bad with benchmarks. But benchmarks are your compass. How do you know how to navigate with no compass? You can’t. You have to know where you stand compared to your peers. You need to know where you suck and where you’re strong so that you know what to improve. This will have the biggest impact on your business. And every percentage point of improvement means more dollars to you.
4. Change something in the pricing. This is another area where the average founder really sucks. The two points above are about how to generate more value for your customers; this one is about how to capture more value for your company. You need both to thrive, and they need to be almost directly correlated. If you’re not yet doing annual plans (really?!), implement them right now. It’s free cashflow. If you are: what can you do to get more bangs for your bucks? An enterprise plan all-inclusive? A lower entry-point plan for soon-to-be-customers not yet ready to buy? A different feature-set that will get specific types of customers to upgrade to specific types of plans to get them? What else?
5. Do it all together. Maybe you’ll have to fundraise from internal or external investors, maybe not (if you factor in likeliness of outcome, time, and effort versus focusing on revenue , is it still what you think would be the best allocation of your time?). But you have a team. Put it to the best possible use doing all the above together, like a perfectly coordinated SWAT squad. Everyone should be owner of something, knowing that profitability is within hand’s-reach. Factor in how much time you collectively have, plot in which results you need to deliver by when, and just go for it. If not for anyone else, for yourselves. Remember: You can make cash, but you can’t make time.
One final thought: The things I’ve mentioned above should have been your bread and butter regardless of the cycle you’re in. Founders are paid to generate growth, and the only way to generate growth is by learning how to do a better job. If you’re not yet profitable, that’s ok. You still have time, even if you have less and less of it every day. But this is likely one of the last moments where you’ll be able to take the opportunity to grow up and become an actual business.
Perspectives change when you become profitable. They really do. Good luck getting there.
Armando Biondi is cofounder and COO of AdEspresso, a Saas Solution for Facebook Ads Optimization. He previously cofounded five other tech and non-tech companies. He’s also an angel investor in Mattermark and 30 more companies and part of the 500 Startups network.