Is your early stage business stretched? Good!

Most early stage companies feel stretched. While they don’t lack for ideas, they typically lack for resources (money, people, time, etc.). In my book this is a good thing. Scarcity of resources forces starker choices and ultimately results in better decision making. I sometimes joke with companies about the occasional over-funded competitor and tell them to use their relative lack of funding as a “competitive advantage”. What I mean is that lacking endless resources (or seemingly endless resources – in many cases even gobs of money eventually runs out) will force them to focus on what’s important, not what everything that’s possible, probable or half way interesting.

To me this discipline results in better decisions and ultimately better companies.

  • Phew! That makes me feel better. Thanks.

  • I agree –so long as it doesn't prevent you from focusing. We see both sides of it.

  • I've definitely gotten tougher and more resilient over the last 12 months, and I don't think it's something we'll lose if or when we're in a more comfortable position. This business makes you learn to roll with the punches (and start looking around suspiciously when one hasn't landed lately).

    It seems like one of the dangers of being overfunded is the temptation to scale your company – particularly your sales & marketing teams – before you have a validated product and a demonstrably repeatable, scalable sales process. When you're relatively broke you're forced to iterate and get the product/market fit right, if only because you don't have money to try another approach (isn't necessity the mother of invention?). As Gabriel noted, though, this is not to say that you can't have *too* short of a runway to make it through enough iterations to reach a viable product.

    • sethlevine

      that necessity is the mother of invention is really right on the mark here. being forced to make decisions early on in a business about what to focus on, how to scale, what resources to add (“do we need another engineer or should we hire a sales person – we can’t afford both”) builds solid decision making that carries over even after you have a bit more breathing room.  i’ve rarely heard a company say “i wish i had spent more money!”  but often hear entrepreneurs say something to the effect of “i sure wish i had that $100k back to spend now that i understand more about my market/customers…” like anything there’s a balance (although not all entrepreneurs end up with that choice given funding availability, etc.).

  • Luke pointed it out, necessity is indeed the mother of all invention. With a short rope, you'll have to make sure that you maximize the use of every inch of it.

    John, you cracked me up.. LOL.. Yeah, this posts makes me feel a LOT better too.

    • sethlevine

      absolutely, jay. and building this diciplane early is important. just because your company is rolling in cash doesn’t mean you should spend it all . . .

  • that's def. true

  • Curmudgeon

    You commentators are a bunch of sycophants. Show me the evidence to back up these assumptions. Anecdotal is not evidence. Why would cash-starved companies do better? Show me an example of a publicly traded company that has benefited from lack of cash. Start with GM as a classic example.

    • sethlevine

      the post and comments refer to private, not public companies – of which i’ve been involved with over 100 and based on that experience. that said, gm’s a poor example. they failed due to extremely poor management, lack of market vision and significant over-leverage. perhaps they would have benefitted from more of a culture of the type that is created when companies are forced to be careful with cash and make smarter decisions in order to survive…