How to face cash-flow issues in a start-up

When I launched my company, Wired magazine contacted me to write a column about how to run a start-up. The editor, Dylan Tweney, blew me away with his offer. It wasn't just that he took me to lunch in the grown-local lunchroom at Wired. He also had this unbelievable faith in me that I knew what I was doing as a CEO.

Here is a confession of lameness: I said I'd write the column and then I lost confidence. I thought I didn't know enough about running a company to give other people advice.

Since then, I’ve spent two years running a start-up in the worst funding market in decades. After insane amounts of struggling, we have raised about $1 million, and for the first time, I do not feel panicked about keeping the company in business. We will have to raise more money, but I can see the path to that, and I think I can do it.

At the same time, I had a recent flurry of outside affirmation: Psychology Today featured me as a person who has outstanding resilience, and Self magazine is featuring me in their August “success” issue. So even though I squandered my opportunity to have a column in Wired, I am ready to give advice about how to run a start-up.

I'm going to answer the question people ask me most often: “What do I do when my company is out of money?”

Here is the answer:

1. Lay people off to save money
2. Forgo salaries to save money
3. Make a sale to generate money
4. Cut back your family's spending to redirect money to the company
5. Kill your personal credit to redirect money to the company

All those options suck, of course. I should know. I did them all. And each time I wrote a blog post about how I was going nuts from funding, or making my family crazy from funding, commenters would tell me I look too crazy for anyone to fund.

But entrepreneurs wrote to me to tell me that they understand. Because most entrepreneurs have experienced something similar. They just don't write about it. And investors are not stupid: They know this is what happens to entrepreneurs. That’s why investors are investors and not entrepreneurs.

Lots of people told me to throw in the towel, but entrepreneurs never did. Because entrepreneurs knows that having a successful startup is really about not quitting. You never get the business model right on the first try. You never feel like you know what you're doing, and you always have to adjust and adjust until you find what works. If you have passion and energy and faith, you keep going.

But it has to be an insane amount of passion and energy and faith, because there is no sane reason to have a venture backed start-up. A start-up does not get funding if it is a reasonable business model. A start-up gets funded because it’s shooting for the moon, and investors fund companies to have a lottery ticket to the moon. So the odds are terrible that any entrepreneur will succeed. It is always a more sane financial decision to work at a corporate job for a paycheck.

If you can. If you can stomach it. Which reminds me about the advice my creative writing teacher gave us in graduate school: “If you can do anything else besides writing for a living, you should do it. Because writing professionally is a very hard life.” And really, making all career decisions is about knowing yourself.

So when you talk about how to manage cash flow, the crux of that question is a personal question: How much can you bear suffering in order to do a start-up? Because you're gonna run out of cash. Or worry that you are. You are not going to be able to sleep at night. You are going to start doing little, self-destructive things that add up to terribleness. Like, eat fries for sixteen meals in a row, or yell at your kids, or forget a date you made with your girlfriend.

You need to decide for yourself how much you want to do your company. It's not rational. There is no right answer. There is infinite suffering. In exchange for that, you control your own hours, work with people you love, and solve problems in areas you are passionate about.

At some point a few months ago, everyone at my company was late on rent. I had an eviction notice, two people started sleeping on sofas, and one person had no car. But none of us thought we were shutting down the company. None of us thought that was a possibility. We knew we would keep going, we just were scared about how much worse it could get.

There’s a craziness required to get through cash-flow trouble in a start-up. There is craziness that keeps people doing a start-up long enough for them to exit the start-up. A start-up is a war of attrition. Cash flow is just one battle. And right now, I feel like I’m winning. Hooray.