Entrepreneurs love to spend money on an opportunity and opportunities abound. Every day I meet entrepreneurs that are putting all their saving into their idea in hopes of making it work. Some use their personal funds and some raise money from investors. The old adage that you have to spend money to make money still rings true.
Only, there’s a major downside to spending the cash too quickly — not making enough progress to get to breakeven or be able to raise another round. Unfortunately, the cash in the bank will be spent, it’s only a matter of time for a growth-oriented entrepreneur.
The solution: find the optimal core metrics for the startup and pace yourself until those are met. Once the metrics are in place, ramp things up. One of the most common mistakes is investing heavily before the business is well understood (I’m personally guilty of this).
Entrepreneurs love having cash in the bank. And, inevitably, it’ll be gone quickly if there isn’t a repeatable business model. Figure out the right rhythm for the startup and invest accordingly. Don’t be afraid to be patient until the right metrics are solid.
What else? What are some other thoughts on entrepreneurs and cash in the bank?