
What to do if your startup is running out of cash - davesuperman
https://marker.medium.com/how-to-manage-a-business-thats-running-out-of-cash-a9e109a2f254
======
bionhoward
Sell more, is obvious advice here. My problem is I’m a solo founder so I wear
all the hats, and I love to code and research and architect. I don’t “love” to
pitch, and convince people I’m legit and show them how I can help them. Pretty
confident I’m not alone in that. We geeks must sell.

Startups running out of cash right now can cut costs, yes, but the only path
to long term survival is to sell enough to cover your costs. For that you need
a list and a pitch / script (or a SaaS platform funnel)

It’s a turbulent time. There is almost someone out there struggling who would
pay for what you’re selling, but not the way you sold it before this crisis.
If not, there’s almost surely someone out there who can use a different
application of your skills.

And you know what? Business isn’t the end of the world. A living human can
rebuild a dead business. A living business can’t rebuild a dead human (unless
Peter Thiel became a necromancer recently)

~~~
scarface74
The obvious observation is that if you don’t want to deal with pesky things
like customer acquisition, you don’t want to be an entrepreneur.

~~~
1234_yyyfyf
Nonsense.

I made a healthy 6-figures pa in the Mac App Store with zero marketing for 3-4
years when I first got into software. That was about timing and getting a few
products right.

Plenty of stories like that. Just like there are plenty of stories where
companies, say, had everything locked down _but_ engineering and failed.

I've never met a successful entrepreneur who spoke in absolutes. To a person
they've all admitted there's a lot of luck / timing / chaos involved.

I've met failed entrepreneurs with degrees and funding and plans -- people who
on paper did everything right.

~~~
redis_mlc
> Just like there are plenty of stories where companies, say, had everything
> locked down but engineering and failed.

Can you provide some examples?

~~~
awb
I used to work with a global streaming service in 2006/2007\. They had
exclusive streaming rights for major sporting events, way before ESPN and
others.

Their tech stack was custom built and primarily designed by a single
developer. The company grew rapidly, but he kept all the institutional
knowledge.

They were winning more streaming content, but couldn't promote it it launch it
on time because their developer held the keys to the castle and all changes
were funneled through him.

Unfortunately, the company couldn't grow at such a slow pace of development
and the parent company shut them down with about a hundred people losing their
jobs.

~~~
redis_mlc
Well, that's really an organizational failure as much as an engineering one.
Same as telling the sales manager, "You're responsible for sales, but you
can't hire any sales persons."

I'm in Silicon Valley and I see a lot of strange things, but I've never seen a
business fail because of product performance or wrong choice of computer
language or framework, but:

\- Friendster did have significant site performance issues that may have
contributed to it getting marginalized.

\- Twitter routinely showed the "fail whale" until they got their act
together.

\- eBay was 30 days late in doing their Japanese version, which allowed Yahoo
Auctions to dominate that country. (Their whole i18n situation was a fiasco
with parallel US and non-US code bases and url-based locale setting.)

\- Real Media sold their real5 streaming server to most US radio stations, yet
could never get G2 server to work reliably.

\- I've talked to startups with a 50,000 LOC web product and 200,000 lines of
test code. I'm curious how that worked out.

------
DoreenMichele
_It’s a huge struggle to stay motivated during a crisis, especially when your
co-workers are leaving. And this goes for founders, too._

Some show on HGTV about crazy houses interviewed a guy with a crazy big house.
He had stuff in his house like a private shooting range.

He said he had flown more than a hundred missions while in the Air Force and
been shot at in all of them. He figured commercial real estate would be easier
to deal with than that and he ended up making a killing, probably because he
had nerves of steel compared to most people.

Right now is not a good time to do something like volunteer in a homeless
shelter to get perspective, but you can read up on the problems of people who
have it worse than you. Everyone is in a world of hurt right now.

Everyone.

Even rich and established people are scared and trying to sell off assets to
cover cash flow needs.

Your burden isn't particularly bigger than that of anyone else during this
crisis. If you don't show up and rise to the occasion, tomorrow is worse.

Humanity has survived other big crises, like World War II. This isn't the
first time and it probably won't be the last.

I'm trying to be helpful. Recent years were much tougher for me than this is
proving to be. I spent several years homeless, etc.

(insert encouraging words or grim humor here, whichever is your cup of tea)

~~~
Legogris
> Right now is not a good time to do something like volunteer in a homeless
> shelter to get perspective,

Maybe it's the right time because the need is certainly there. Not everything
has to be done by egotistic motives.

~~~
DoreenMichele
Yes, the need is tremendous:

[https://streetlifesolutions.blogspot.com/2020/03/covid-19-an...](https://streetlifesolutions.blogspot.com/2020/03/covid-19-and-
impact-on-homeless.html)

But I'm not interested in being accused of promoting dangerous behavior. I
already get enough ridiculous pushback.

~~~
Legogris
There's a difference between not promoting and dissuading.

~~~
DoreenMichele
For the record, I am neither trying to promote nor dissuade. I'm just trying
to avoid stepping in a giant pile of doo doo at a time when nuance is lost on
a lot of people, many of whom are understandably very upset and stressed out
because the world has very suddenly gone to hell in a hand basket in their
eyes.

Personally, I don't think it has gone to hell in a hand basket, but that's not
a point of view that most people will welcome. I continue to struggle with how
to express myself in the face of the current climate.

------
jwr
"To read the story, create a free account" — no, thank you.

If you want your stories to be read, do not post them on Medium.

~~~
jan_g
I also don't have an account, so I got the same message as you. I wonder how
Medium decides which stories are fenced with "create an account" page and
which not, because most of the stories I can read normally.

~~~
capableweb
They have dark UX patterns that makes the content creators mark a setting for
doing this. Most of them are not aware it introduces an account-wall for their
articles.

------
andygcook
I went through a near-failure experience with my startup at the end of 2017
and wrote about how we just barely got out of it. Sharing in case it helps
someone given the current climate [1]

The advice in this article is pretty good. Pinning hopes on the next funding
round or putting half measures in place like a 10% layoff when you really need
a 50% layoff isn't a sound strategy. My main takeaway from my own experience
is that I should have made the hard calls much sooner. 100% transparency with
the existing team is also important. If they don't understand why a tough
decision is being made, they're less likely to stick around.

\-- [https://tettra.com/blog/navigating-the-depths-of-near-
failur...](https://tettra.com/blog/navigating-the-depths-of-near-failure-to-
profitability-an-introduction/)

------
accountuser
On a personal note, a neighbor working for a food services company, serving
FAANG size companies was converted from a full time to contractor, and then
furloughed.

By his own admission, his employer didn't have enough cash for for other
alternatives. There are sometimes no easy ways to deal with running out of
cash, especially during a crisis such as this.

In industries reliant on just in time delivery, including that of cash, back
inventory and cash piles are non existent. This crisis should be a reason to
explore contingencies for such companies/industries

Edit: from another trending HN article [1]: "companies need buffers to face
uncertainty –not debt (an inverse buffer), but buffers."

[1]: [https://medium.com/incerto/corporate-socialism-the-
governmen...](https://medium.com/incerto/corporate-socialism-the-government-
is-bailing-out-investors-managers-not-you-3b31a67bff4a)

------
shartshooter
I run two companies, one is a passive income SaaS business and the other is a
CRM consulting business.

Inbound inquiries into the SaaS business have dropped off. That business helps
drive sales but traffic is basically gone because businesses aren’t looking to
buy another $1k/mo tool.

My CRM consulting company has had some drop off where customers are putting
projects on pause. That said, we still have deal flow, companies are looking
to operate during this time of crisis, although we are looking harder to find
them.

I’m fortunate because both companies have almost no overhead(contractors +
100% remote) which helps quite a bit.

Companies with a lot of overhead are going to be in a world of hurt relative
to those who were already lean or who can pivot quickly.

------
digitaltrees
Figure out break even. Cut costs until you’re there. Do it quickly and
decisively and take the absolute best care of your team you can under the
circumstances.

~~~
taneq
Yes to break-even (this is the whole goal of 'ramen profitability') but also
don't neglect finding new revenue sources. And that doesn't just mean 'hustle
harder' \- maybe you can find a side market, or do some consulting on the
side, or something.

~~~
digitaltrees
At a time like this, spinning up new revenue is a luxury that time does not
afford. Get to a sustainable burn rate then grow from a new foundation.

------
huxflux
"To keep reading this story, create a free account." \- No.

------
cryptica
I'm director at a tech startup in the real estate space. We have about 8
contributors working full time or part time and everyone (directors included)
is only getting paid with our own blockchain cryptocurrency. We haven't
launched yet and have been running that way for months.

You don't need fiat money to run a company anymore. You can make your own
cryptocurrency and it works as both money and company shares. I was quite
surprised initially by how willing people were to accept it as payment for
their work but now it seems totally normal.

~~~
Luuseens
So your solution is to not pay employees. I'll admit, I'm a bit jealous you
found people willing to work for free.

~~~
cryptica
But it's not worse than how co-founders operate in bootstrapped startups.
Initially, they're not getting paid.

The difference in this case is that there is a lot more fluidity in terms of
who can benefit from and participate in the project's growth. Also, claims of
ownership are backed by a cryptographically-secure financial instrument
instead of promises and paper contracts. We know what happens to employees who
work for options contracts - In our case, at least their earnings are not
going to 'expire worthless'. All directors hold the same type of tokens as
employees so there is a shared incentive.

This week we had hundreds of people coming out of nowhere and offering to help
us with our marketing in return for a small amount of token.

Seeing this, I have no doubt that cryptocurrency will be the future of startup
financing.

------
fraktl
Clickbait title during hard times and then account-wall.

Can it scream "do not read, there's nothing useful here" any louder?

------
neonate
[https://archive.md/PMIw2](https://archive.md/PMIw2)

------
seizethecheese
What about if you have plenty of cash? How to protect company against monetary
uncertainty? Inflation adjusted t-bills?

------
rvz
You need to re-evaluate the sustainability of your tech startup if it has a
very high burn-rate, too much head count and little to no revenue but relying
on endless VC funding rounds. If the burn rate is in the millions per month,
then the forecast doesn't look good there.

As I said before, when it comes to creating a tech startup in 2020, it now has
to compete against the risk of being sherlocked or copied by the big tech
companies, scalable to millions and generates a high profit margin whilst also
being recession-proof, office or government ordered shutdown proof and now you
can add pandemic-proof to the list.

Maybe the lesson to learn here can be what Paul Graham one said: _' You need
three things to create a successful startup: to start with good people, to
make something customers actually want, and to spend as little money as
possible.'_ All points are still relevant but now at this time, it is for
startups to make something customers and businesses actually _need_ not 'want'
anymore whilst still being able to break even despite the aforementioned
obstacles.

~~~
echelon
> risk of being sherlocked or copied by the big tech companies

How the hell do you escape this? I'm terrified of my startup getting cloned
and staffed with resources beyond my capability of matching.

~~~
tialaramex
The founders and my immediate boss at the first startup I worked for were
convinced huge corporations would see what they were doing and just beat them
to the punch. Only years later after one of the huge corporations bought the
business and they could see it from the inside did they understand that was
never possible. At the startup you'd set three people working on something
important and get it done the same day, at the huge corp there'd have to be a
week or so of meetings to even assign people. Sure you could assign thirty or
even three hundred if you needed them, but you're already a week late.

So don't worry about it.

~~~
ed_elliott_asc
Also once people we’re assigned it would be implemented by people who were
(normally) not very good and could take months or years by the time they were
finished because of all the extra features that weren’t actually needed were
implemented and by the time they had changed frameworks, languages, tools and
actually been deployed

------
justlexi93
Having a poor cash flow can signal the impending death of a company, and not
preparing how to deal with it means certain failure.

~~~
coralreef
The nature of startups (pursuit of rapid growth) is prioritizing product-
market fit, not necessarily cashflow.

Most startups die from failing to gain users, not necessarily because they
planned expenditures poorly.

~~~
dillonmckay
They fail by pursuing marketshare instead of profitability.

~~~
chii
Because the existing unicorns all have massive market share, and use that to
dominate their field. VCs don't want slowly profitable companies. They want
massive unicorns they can flip at IPO and get out before taking on long term
business risk.

It kinda sucks, because I say it's healthier to have a large number of small,
competing businesses than a winner-takes-all scenario.

~~~
api
Yes and no. There is one benefit to huge winners: they have the cash to invest
in R&D. I doubt Google would be building quantum chips if they didn't have a
massive cash cow or two to feed that.

Generally only governments and massive cash cow monopolies or near monopolies
can afford to invest in basic research. That's because on any time scale
shorter than a decade basic research is just setting fire to money. You need
money to burn to do it.

------
xwdv
If your startup is running out of cash, accept that it’s game over and prepare
for the end. Don’t worry, this won’t hurt a bit.

Otherwise you risk becoming a zombie startup, that is dead but doesn’t even
know it’s dead, and that’s a waste of time for everyone involved.

~~~
hodgesrm
Your advice is way too binary. Cash flow crunches happen all the time in
bootstrapped startups. First thing is to cut costs because you can do that
quickly.

1.) Cut/defer all discretionary costs.

2.) Founder salaries go to zero. They signed up for it.

3.) Defer sales commissions, e.g., don't pay until the company gets paid.

4.) Defer payments to vendors. If it's 15 days net pay in 60. Our customers do
this all the time.

5.) Last of all lay off staff. If you can avoid this step it makes your
bounce-back way faster.

Do all of this before you need to.

At the same time go after your marketing strategy. Downturns like what we are
seeing now also represent opportunities for companies that can reposition to
save users costs. Payoff for this will be longer term.

Finally...It's a bit late to point this out, but it's dumb not to setup a
credit line when times are good so you can get through cash flow crunches. I
would shoot for something that gives you 6 months runway if you can get it.

~~~
zeckalpha
> 4.) Defer payments to vendors. If it's 15 days net pay in 60. Our customers
> do this all the time.

Not good advice if you think the crunch may last more than 60 days.

~~~
hodgesrm
It's part of 'flattening the curve'. In 60 days your overall burn can be lower
due to other factors, so you can add the payments back in.

~~~
zeckalpha
Be sure to annualize your effective interest rate.

------
nurettin
Morbid articles about firing people when you're running out of cash are great.
Reminds me not to work with people who don't have the personal integrity to
take some responsibility instead of acting like a jerk on the first sign of
trouble.

~~~
stickfigure
What is your proposed alternative? What does "take some responsibility" mean
when you're staring at the end of the runway?

~~~
nurettin
Have some personal wealth to spend on wages for a few more months instead of
"sadly letting people go". Because you are not sad, not on a runway and what
you are riding was definitely not a plane.

~~~
stickfigure
"Just have more money"? I mean, if we're going with magic, why not "have more
customers" or "have SoftBank deposit millions of dollars into your bank
account"?

~~~
nurettin
those are all good ideas. And more realistic than most startup demands. My
point is, put your hand under the rock instead of pissing off. Clear enough
now?

~~~
stickfigure
I genuinely have no idea what you just said.

~~~
nurettin
Since saving up before putting people in danger is "magic", and incompetence
in creating a business is like "failing to take off", I'm surprised words mean
anything at all.

~~~
stickfigure
You sound like the critic that has never been in the arena.

~~~
nurettin
Been there, summer of 2013, really neat place. Italian drivers actually stop
and let you pass even if you are jaywalking.

