So a little while back Eric Newcomer did a deep dive on the implosion of venture-backed Bench. There’s a lot going on here of a VC-backed company that fired its CEO (something I think is almost always a bad idea — the new guy never understands the product or hustles hard enough), took on too much debt, went under, and then was bought last minute in a fire sale.
The exact details don’t really matter for purposes of this post. But one detail jumped out at me — the start-up was burning $1.5m a month after raising $30m in VC capital. And growth had slowed.
This is a really, really tough position. And a surprisingly common one for venture-backed start-ups.
Growth does slow for many of us. In fact, most of the start-ups I’ve invested in and worked with have had one Year of Hell. When growth slowed dramatically. The best founders find a way back. But maybe only the best ones.
The question often is when growth slows — do you spend more or less?
It’s a complicated question. On the one hand, once growth slows, if you don’t innovate faster, upgrade the team, etc, then growth likely will continue to decelerate. Sometimes all the way down to $0.
It can be tempting to spend all the cash you can to keep things going. To maintain marketing, or do even more. To double down on the sales team.
It’s a temptation. I’ve just never seen increase spending during decreasing growth … work.
On the other hand, cutting spend when growth slows is really tough, too. I’ve seen this 100s of times since 2022. So many SaaS companies saw growth slow and cut marketing spend to almost $0, and stopped hiring in sales. And growth slowed even more because of it.
This is a tough one. All I can tell you is one thing: most founders either are Savers or Spenders. Be honest about which you are. And probably … do a little less of it when times are tougher.
If you’ve always had a higher-than-average burn rate, you likely will spend even more in tough times. I’ve seen this again and again and again. Your gut is wrong. Don’t.
And if you’re always been super stingy (like me, outside of comp, where I try never to be) and had a low burn rate, lowering it even more in tougher times is probably wrong, too. It won’t help you get back to growth.
Savers save. Spenders spend. Each founder has a different DNA here.
Just check yourself when times are tougher. Your nature will usually drive you down the wrong path.
And whatever you do, have a firm Burn Rate budget. And stick to it.
