Transcript
A (0:01)
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B (0:30)
This is Scott Becker with the Becker Private Equity and Business Podcast. Today's discussion is Cash Flow is King. So here's the issue. There are two different kinds of companies. The first kind is the kind that's sort of founder funded, founder built or built with a small rounds of capital and you're really trying to get into business. And in these businesses the sooner you get to cash flow, the better off you are. And I don't care what everybody else says, in most small to mid sized businesses cash flow is absolutely king and you've got to get there as quickly as possible and there should be urgency to do it. And we talk about two things here. One is the founder who constantly says about cash flow, well, we would be there, but a typical company of this type takes three years to get to profitability or says we're just cash flow is just around the corner. The reality is if you could build cash flow and start to have cash flow at your startup, then you've got the ability to have confidence. Invest in all kinds of other things as you grow the business. If instead of building cash flow you're in one of these businesses, you constantly don't want the expenses and move the goal post. If we just when I say move the goal post, I mean increasing the monthly expense run. If you're constantly increasing the goal post, it gets harder and harder to get to that spot where you've actually reached cash flow sort of positivity and to feel like you're really building a real business. So from my perspective, I'm a huge fan of urgency and bringing yourself to cash flow and in driving out all those excuses as to why you're not there. Now to follow up on this talk, there are businesses that are venture capital funded and I always talk about businesses in five phases. There's idea was getting a product out. There's revenues, there's profit and then there's scale. So 1 to 5. If you're venture capital funded by a serious VC player, they're going to reverse that, order some and cash flow is going to become a little different here. A venture capital investor is often going to want to see a company grow to where it really gets to as quickly as possible, to where it plateaus in revenues and at that point the company will start to cut back expenses to bring it to profitability. It's really a different view of the world. It's scale first versus Cash flow first. And the reality is, from my perspective, for most startup businesses we're aiming for cash flow first. If you're venture capital funded, you often have the other pressure. A founder gets so much pressure to put money to work and not to get to profitability until they've reached scale. Then they want to find a way to be profitable because they're really trying to build something big and significant and have a VC winner versus just something that trudges along. It doesn't quite get there. In any event, a fascinating discussion on cash flow from my perspective, but we're a big fan of urgency towards cash flow every time you're venture capital funded where you're playing a different business. Thank you for listening to the Becker Private Equity in Business podcast.