Anti-Cacophony Partners
Control Your Destiny
I love the phrase “control your destiny.” When I tell a startup to do this, I mean “get to cash flow positive” because at that point, they could theoretically survive without future external capital. And if they chose to raise more capital to pursue a strategic opportunity or grow more quickly, they can do so on their own terms. In other words, they are free to make the choices that are best for the business.
So I was intrigued when I saw a fantastic post from Y Combinator that aggregates advice for startups from a bunch of different VCs. One of the one-liners is, “Most companies don’t die because they run out of money,” which is likely true — but getting near cash-out and getting forced to either raise at ugly terms or get acquired at a low valuation, while not death, is also not a pleasant situation and no way to live! It’s literally the opposite of controlling your destiny.
So how do you control your destiny? Big picture: have a clear vision of your cash runway, understand the impact of business decisions on that runway, and appropriately plan ahead for growth, for fundraises, and for taking chances. Doing this significantly improves the overall health of your business, the overall stress level of your organization, and the overall probability that rather than not-dying by having an unfavorable outcome, you end up with your ultimate outcome: either getting acquired at a great valuation or going public.
OK, so let’s dive into the actions you can take to execute. Controlling your own destiny should be a core value of sorts — engrained in your company culture and leading to everyone having discipline around spend. Does that mean experiments shouldn’t be run, especially at the earliest stages? Of course not. Does that mean you shouldn’t invest in product development? Of course not. Does that mean no ad spend, not hiring enough people, not running promotions? No, no, no. But it does mean that you develop, even early on, discipline around why money needs to be spent on an initiative. What is the objective of the spend? Is it measurable? Can you determine the ROI?
So tactically, how do you begin to build this culture within your organization? It can begin at the earliest stages, and even then, it’s helpful to have an executive operator at the table who’s done it before — which is why I’d strongly recommend engaging a fractional CFO. At this stage, you’d only need them for a few hours per week at most, but the value they bring is extraordinary and the ROI on the spend itself is incredible. Here are the tactical steps that can help your company operate with a “control your destiny” mindset:
- Through at least Series B, cash flow positive is almost always just a glimmer in the CFO’s eye. So don’t overthink it.
- Build a financial model so you can play with different scenarios and different options to fuel growth. At the pre-seed or seed level, this model can be fairly high level — it doesn’t need to be a turn-by-turn map, but rather a simple model that defines key assumptions for revenue growth and how that growth ties to hiring and other spend. Keep the number of assumptions limited: you don’t yet know all the drivers of your business, and it reduces model complexity and makes updates much easier. This is your fractional CFO’s core competency.
- Ask your team to justify spend. As profitability becomes more than just a glimmer, this justification can become more structured.
- At the earliest stages, keep it simple: ask them to document the expected effect of the spend, including the timeline in which that effect will be seen, then revisit it once the timeline has passed. What did you learn?
- As you grow, this exercise can become more structured, with templates, better documentation, and better measurement tools.
- As your company scales, build a budgeting process that keeps your management team in sync. At least every quarter, give each department head details of their department’s spend plus what’s forecasted for the next 12–18 months, and ask them to verify the forecast looks accurate.
- In the historical data, are there vendors they no longer need?
- Are the expenses and vendors booked to their department correct?
- Looking forward, given the company’s revenue goals, does their forecasted headcount and expense forecast appear reasonable?
- These quarterly updates can be lightweight. When it comes time to build the full budget for the next year, since department heads have already been thinking about it, that typically ugly, months-long process becomes relatively lightweight.
- The side benefit: this process increases transparency and gets the management team aligned on controlling the company’s destiny — it becomes part of the company culture.
- Talk about company financials transparently across the organization. Give monthly or quarterly financial updates at the company All Hands. Have your fractional CFO present departmental financials occasionally at each department’s regular team meeting. The more your whole team sees the impact of their work on the company’s ability to control its own destiny, the more bought in they’ll be, and the more they’ll treat the company’s money as their own.
Building a culture of spend discipline — controlling your destiny — won’t guarantee success, but it will significantly increase the probability of success, align your team around one big goal, and make everyone feel more confident when deciding on large initiatives. Although it should be started at the earliest stages, it’s never too late to start! Best of luck!