I have a friend who made a nice exit from his startup. Together with a co-founder he led a team of 20 people. They build and sold a SaaS for a niche market. In his team where top sales people who took care of bringing in a lot of paying users.
After the exit he struggled for years.
You might think, that a founder with an exit of that size would find another job easily. True, his experience was huge. He was sharp and technical. Yet, he burnt most of his money in the years after. He failed at most of his investments. He did not have the network to become a consultant directly.
Cash just multiplies problems. ~Brendan Tully
His cash did not help him.
Great people have cash flow at any given time
There are 5 great entrepreneurs I had the pleasure of partnering up with. Everyone of these men and women had one thing: they never went into debt. They saw the current company as a living construct.
A breathing piece of life that produces value right up front and made money from day one.
Looking back, that was the one core distinction that separates these businesses from the failed ones. Moreover, it was not just one big pile of investment capital, it was recurring cash flow that came in before the value was delivered.
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“The bootstrapper is here for the long haul” ~the bootstrapper’s bible by Seth Godin.
The long haul can only be achieved with a steady cash flow, with steady value creation. There is no starvation of money. And even more important: there is constant communication with the customer. The vital element for every business. Famous entrepreneurs like Seth Godin know that, and you know it, too.
The bootstrapping misconception
Now, let us imagine you are starting out with a new business. You might think that bootstrapping is about freelancing until your product takes off. You might think that you can afford to do a job, even as a freelancer, and still have enough focus to build your own thing.
Every other agency does that.
There is a not a big distance between freelancers and employees. The freelancers I know are mostly creatives who do not want to be told. They are free, but.
They are not business people.
Businesspeople see bootstrapping as an evolutionary stage of their business. They work on the business, not in the business. A business creates value and gets paid in return. Only rare cases have different payback methods. One example is twitter that gets engagement and power in return.
Simply put: a business is a vehicle to make money, not to consume money.
There are some better approaches to bootstrapping than funding it through a cash flow of manual labor. Some ideas I have seen this year worked out well for the founder.
- Build a prototype of a product that you sell right now. Keep the rights. Proceed developing it and see who wins.
- Build a consultancy, that is focuses on one problem, of one niche. See the money as learning to get into the market. Then build a SaaS on top of it (like a really successful friend of mine from HCMC)
- Sell the a licence of your product to a big player in your target group. Offer exclusivity for shipping it later (as you are just starting out developing it).
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If you need further advice on how to get the first 100 customers, join Kevin DeWalt’s program.
But I want to focus, and I have savings!
This is a tough one. Most people break doing that, they go back to their old jobs. Really, there are only certain reasons people do that.
- They have enough money. Take Derek Sivers’ startup Woodegg. He had the skills, had the funds, had the community.
- They have such a specialized skillset that they can be hired anytime, anywhere. An SEO and data security consultant I know does that. When I spoke to him last time, he said: i am doing a longer vacation. Anytime I need money, I work for a couple of days.
- They are stupid.
- They know for sure that it works. Best example is Panos Meyer, who founded the flight app. See the interview here.
What if I make money already?
Great. Now you are already in the comfort zone (if you spent less than you make, of course). Ask yourself the following questions.
Is it enough for my end game?
Simply put, does this money bring you close enough to your lifelong goals? If so, you are probably not reading this blog to get life advice. You are the least person in need to read about cash flow. Then I recommend my articles about marketing and software projects.
Do I learn the right things?
This is about the skill that you need for your end game. Do you acquire them while making money? If not, make a longer-term plan. If what you do know does not bring you to what you really want to do in life, plan to getting out as fast as possible.
Am I in my comfort zone?
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Image credit to gotosurvive.com
I know how that must feel like from looking at friends who do consulting. They make more money than most startup founders, they can travel the world, and they even call themselves location independent entrepreneurs.
But they are not.
Laziness, or even worse, complacency destroys the entrepreneurial spirit. If you are there, and this is not your end game, you need to change. Go challenge yourself. Have a couple of awkward conversations every day. This principle works for Tim Ferris and it will work for you as well.
I give you another story about that. This is from one of the 5 people I mentioned earlier, who constantly challenges himself. He makes decent money but constantly gets out of his comfort zone. He has cash flow but starts new endeavors that all produce cash flow right from the start.
From marketing consultant to a scaling business
Jacob Puhl runs firegang.com . He worked as a sales rep at a company that sent him around the country, constantly moving. He was being told what to do. His end game was simple, not ambitious. Yet, now we is at a higher level than most entrepreneurs ever get to.
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“I just wanted to be free”, Jacob Puhl in our YOWO interview
“I just wanted to be free” ~Jacob Puhl in our YOWO interview.
The way he used cash flow is remarkable. He first got his bills down to just below $2000. He did not quit his job yet, but started looking for opportunities. He did not know about web design or marketing, when he landed his first hits.
Just a few marketing contracts made him bootstrap his business.
At the point he made the sales to take over internet marketing tasks was crucial. He quit his job and learned as he went. The work was amazing and he learned how to do it even better.
Now his team grew to over 20 people.
Jacob was not pouring money into his start-up business. The business was making money and he was working in it.
Now he is free.
Are you?
Where does your cash flow come from right now? Tell me about it via email: till@tillcarlos.com and I write about your experience in one of the next posts.
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