Dear SaaStr: Why Do VC Backed Startups Seem To Almost Always Be Running Out of Money?
The #1 issue I see is not understanding what investments really are accretive — and which aren’t. And so the money goes far, far faster than anticipated.
Venture capital, if you raise it, is there to invest. You don’t need ROI in sixty minutes, you can be a little patient in getting the returns. But … but:
- A sales rep that can’t hit quota in a few months = cash drain. You gotta move on.
- A VP of Marketing that can’t get you leads & opportunities = cash drain. They spend so much on stuff that doesn’t really work.
- A customer success team that can’t drive down churn and drive up NPS = cash drain. They have to tilt the curve on retention.
- An engineer that can’t ship a core feature or upgrade on time-ish = cash drain. The best engineers are so cheap. The rest? So expensive.
- Etc. Etc.
I.e., hiring just to fill an org chart drains all the cash – fast. This is what I see all the time. Mediocre hires drain all the cash, often in just a few months.
Hiring reasonably quickly … but where the hires, at least as a group, pay for themselves over the next 12 months or less … burns nothing net. And so that’s a great use of your precious, expensive, equity capital.
If you don’t understand how the next few employees are accretive, take a pause. You always know for the first 5, 10, 15, 20. But as you scale, after 40 or 50, sometimes you don’t know.
You should.
……..
A great recent session with Sam Blond, CRO of Brex, Zenefits and more. This time he said, the next time, he’d only hire the amount of reps they actually needed. Better too few great ones than too many not quite great ones:
(image from here)
