You are in a constant race against the clock at a startup. The amount of money you have in the bank divided by your monthly expenses is the number of months you have until you run out of cash, otherwise known as “the air in the room.” You are always just a matter of days, weeks or months from certain death by asphyxiation. This remains true in any business until the cash coming in is greater than the cash going out. The more money you raise from outside investors the more air in the room, but rest assured you are on life support until you can breath on your own. Most companies in technology chose to put growth before profits to reinvest as much as possible back into the business, stay ahead of competition and become the dominant player in their space. Amazon wasn’t profitable until years after it when public. Many of the technology companies that have gone public recently, including Groupon, Jive, Yelp and Pandora are not yet profitable, but continue to grow rapidly and are the leaders in their respective spaces.
I have heard it said many times that most startups fail not because they didn’t have a great idea, but because the air in the room ran out before they could realize their full potential. How much air is left in your room?
22 more posts to go in my 30 posts in 30 days challenge.
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