A few months ago, I met with a founder who asked my opinion on the current state of his company. I said the salaries he was offering were large for an early-stage startup. The people earning them were qualified and deserving, but the company couldn’t afford-big corporation salaries. It was burning too much money every month and needed to double or triple for that level of payroll to make sense. I told him that I projected he would need to either reduce salaries or raise cash.
I caught up with him this week. He told me that he’d just survived a near-death experience. The company is still growing, but the high payroll caused him to run dangerously low on cash. He reduced his team’s salaries, parted ways with some team members, and raised emergency capital. Doing all of that at once was painful and stressful for him and his investors. It taught him to make a point of having a good sense of the trajectory of his company at all times and to make tough decisions early to avoid getting so close to the abyss.
I never raised outside capital for CCAW, but I did have near-death experiences. I concur with this founder: try not to let this happen. They’re awful. They took a toll on my team and me. Some are unavoidable and you have to do the best you can with the hand you’ve been dealt. (A global pandemic comes to mind.) Others are entirely avoidable.
Founders should always have a finger on the pulse of their company. If this isn’t one of their strengths, they should have at least one person on the team who can fill this gap. It sounds crazy, but so much happens so quickly that it’s not unheard of to wake up and realize you’re almost out of cash. The company’s heart just stops beating, and it may be too late to resuscitate it.