Control Your Destiny

Originally published September 5, 2023

I love the phrase "Control your destiny." When I tell a startup to do this, I mean "get to cash flow positive" because at that point, they could theoretically survive without future external capital. And if they chose to raise more capital to pursue a strategic opportunity or grow more quickly, they can do so on their own terms. In other words, they are free to make the choices they need to make that are the best for the business.

So, I was intrigued when I saw a fantastic post from Y Combinator that aggregates advice for startups from a bunch of different VCs. One of the one liners is, "Most companies don't die because they run out of money" which is likely true, but getting near cash out & getting forced to either raise at ugly terms or getting acquired at a low valuation, while not death, is also not a pleasant situation & no way to live! It's literally the opposite of controlling your destiny.

So how do you control your destiny? Big picture: Have a clear vision of your cash runway, understand the impact of business decisions on that runway, and appropriately plan ahead for growth, for fundraises, and for taking chances. By doing this, you significantly improve the overall health of your business, the overall stress level of your organization, and the overall probability that rather than not-dying by having an unfavorable outcome, you end up with your ultimate outcome: either getting acquired at a great valuation or going public.

OK, so let's dive in on the actions you can take to execute. Controlling your own destiny should be a core value of sorts. And by that, I mean it should be engrained in your company culture and lead to everyone having discipline around spend. Does that mean experiments shouldn't be run, especially at the earliest stages? Of course not. Does that mean you shouldn't invest in product development? Of course not. Does that mean no ad spend, not hiring enough people, not running promotions? No, no, no. But what it does mean is that you develop, even early on, discipline around *why* money needs to be spent on an initiative. What is the objective of the spend? Is it measurable? Can you determine the ROI?

So tactically, how do you begin to build this culture within your organization? It can begin at the earliest stages, and even at the earliest stages, it's helpful to have an executive operator at the table that's done it before, and so I'd strongly recommend you engage a fractional CFO. At this stage, you'd only need them for a few hours per week at most, but the value they can bring is extraordinary and the spend itself has an incredible ROI! Anyway, on to tactical steps that can be done to ensure your company operates with a "control your destiny" mindset:

1. Through at least Series B, cash flow positive is almost always just a glimmer in the CFOs eye. So don't overthink it.

2. Build a financial model so you can play with different scenarios and different options to fuel growth. At the pre-seed or seed level, this model can be fairly high level. It doesn't need to be a turn x turn map but rather a higher level, rather simple model that defines key assumptions for revenue growth & how that growth ties to hiring & other spend. Keep the number of assumptions limited because 1) You don't actually know yet all the drivers of your business, and 2) It reduces model complexity & makes updates much easier. This is your fractional CFOs core competency.

3. Ask your team to justify spend. As profitability becomes more than just a glimmer, this justification can become more structured.

   1. At the earliest stages, though, keep it simple: Simply ask them to document the expected effect of the spend, including the timeline in which that effect will be seen. And then revisit it once the defined timeline has passed. What did you learn?

   2. As you grow, this exercise can become more structured. Templates can be built, better documentation can be developed, better measurement tools can be developed or acquired

4. As your company scales, build a budgeting process that keeps your management team in sync. At least every quarter, provide each department head with details of their department's spend plus what is forecasted for the next 12-18 months & ask them to verify that the forecast looks accurate.

   1. In the historical data, are there vendors they no longer need?

   2. Are the expenses & vendors that are booked to their department correct?

   3. Looking forward, given the company's revenue goals, does their forecasted headcount and expense forecast appear reasonable

   4. These quarterly updates can be lightweight and not require a massive amount of your department heads' time. But when it comes to the end of the year & building the full budget for the next year, they've already been thinking frequently about the next year, so the budget process that is typically an ugly, months-long process in the last quarter of the year, should also be relatively lightweight

   5. The side benefit of this budgeting process is that it increases transparency & gets the management team aligned on controlling the company's destiny: It becomes part of the company culture!

5. Talk about company financials transparently across the organization. Give monthly or quarterly financial updates at the company All Hands. Have your fractional CFO present departmental financials occasionally at each department's regular team meting. The more your whole team sees the impact of their work on your company's ability to control its own destiny, the more bought in they'll be, and the more they'll treat the company's money as their own

Building a culture of spend discipline -- controlling your destiny -- won't guarantee success, but it will significantly increase the probability of success, will align your team around one big honking goal , and will make everyone feel more confident when deciding on large initiatives. Although it should be started at the earliest stages, it's never too late to start! Best of luck!