Startup CEO: A Field Guide to Scaling Up Your Business, + Website

CHAPTER NINETEEN

MAKING SURE THERE'S ENOUGH MONEY IN THE BANK

Running a business is very different from managing your personal finances. The revenue is less predictable than a salary; multiple people contribute to expenses; and there's a lag time between revenue/expense and cash impact.

Keeping a watchful eye on cash is especially important for two reasons: funding requirements and funding availability don't always go hand-in-hand and most startups regularly have to deal with the fundamental quandary of rapid growth being at odds with profitability.

SCALING YOUR FINANCIAL INSTINCTS

Return Path received its first institutional financing in late 2000 (we did a large “angel” round in late 1999) and our first “real” board meeting was in November of that year. It was a memorable experience all around but there is one piece of advice that I'll never forget hearing. Without the slightest bit of sarcasm or irony, one of our board members insisted that I never let the burn rate get above $1 million per month.

I had started Return Path almost a year before and we didn't come close to an annual burn rate of a million dollars. A million dollars a month?! Of course, I would never spend money so irresponsibly. You've probably guessed by now that I'm the type of person who kept careful tabs on his first checkbook, obtained at age 10 by riding to the bank on a bicycle with a piggy bank in tow. Is someone who takes care about every $100 really going to drop the ball on $100,000? Shockingly, the ...