In today’s world of “just grow baby, grow”, the break even point for startups can be all over the map.
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Maybe you get to break even at a run rate of $1M/year. Maybe, like Uber, you can have revenue in the billions and not get to break even?
The better question is when should your company get to cash flow positive?
It’s easy to get seduced that there is a bottomless pit of funding available to you. And like most things, it’s true you’ll have funding available until it isn’t.
That’s why I like the idea of getting to cash flow positive as quickly as you can.
I had a saying that I liked telling my team: Cash flow positive equals freedom.
Lot’s of good things happen when you’re cash flow positive:
A. You don’t have to worry about raising money anymore, and…
B. You’re equity position is not getting diluted any more when you’re cash flow positive, and…
C. You can reinvest your profits in the business to keep grow, and…
D. You’ll have a cash buffer if things take a turn for the worst, and…
E. You don’t have to sell the company unless you want to.
Eventually your company needs to make money.
That’s why I worry about the bad lesson that you can take from companies like Uber. For most of us, there isn’t a bottomless pit of money that you can tap into.
And even for Uber, the money pit ran out. Travis Kalanick lost his job as Uber’s CEO in part because the company couldn’t raise more money with him as the CEO.
Don’t let that happen to you: Have a plan to get to cash flow positive.
Everything eventually returns to normalcy. Mark my words. Capital will become difficult to raise again, and you don’t want to get caught when it does.
Run your company in an appropriately frugal manner (read: ), so you get to cash flow positive as quickly as you can. Then, you’ll truly be free.
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