It's mad that this even needs said. A company's aim should be to be sustainable and profitable, not to be a receptacle for capital. Some companies need external capital to get to that point, particularly hardware or those operating in slow-adopting markets. If you don't need it, don't take it.
A couple of lifetimes ago, a business mentor of mine taught me a truth that has served me very well.
There is a correct amount of money for starting a business, and it's probably less than you think it is. Too much money in a startup tends to gum up the works and can kill a business just as dead as not having enough. If you have too much money, you're not only going to blow it on things that don't matter, but when you do, you're likely to do so in a way that incurs ongoing costs.
Things like leasing fancier offices than you need (or, in some cases, leasing any office space at all), hiring more people than you need, etc.
As he put it, if you're starting a business and aren't worrying about how you're covering your expenses next quarter, you probably have too much money.
To add on, a company who spends a lot of money on frivolous things or over-hires will need to pay the internal cost of downsizing when the time inevitably comes. That means layoffs, fewer employee benefits for those still employed, and general tightening of the belt.
There is a huge cost when you let go of people who would otherwise be kept on payroll if you could continue to pay them. You will get fewer internal referrals to new hires and remaining staff become less engaged in their work. There is additional long lasting damage to your staff as a whole who survived the layoff this time. The culture at the company shifts and never fully recovers.
I don’t think businesses always fully appreciate the long term cost and damage layoffs do to small and medium sized companies, but see headcount reduction as a simple way to reduce its own costs.
Plus you will tend to take committing decisions like hiring, location, or business goals that will limit how much you explore alternative paths.
Having a team to manage forces you to find problems they can solve, which is not necessarily where the money is.
You have a css/js developer? Ok I have to find frontend tasks now. Etc
Yeah sometimes it becomes clear founders forget the purpose of a company is to make money/turn a profit and not just to repeatedly raise money and be famous. I have worked at a company that forgot this. It feels kind of surreal sometimes.
That's one view of what a company should do. Another is that it should become famous enough to attract the attention of a FAANG and get bought out ASAP, making the founders multimillionaires before they turn 30. It's the techbro lottery. Many will play, few will win.
Surreal indeed. It blows my mind to see investors repeatedly try to propel the same business model (like electric scooter sharing) far past the point of reason. The founders can surprisingly turn around, start something else, and get showered with money again.
It feels completely disconnected from reality, a very abstract way of thinking about money and business.
Does that happen sometimes? Surely. But more often than not, founder led companies who have personal attachment to the outcomes deliver far better than some self-interested, career stepping-stone, decision-by-committee corporate blob. See Nvidia, Facebook, Stripe, and Tesla compared to Intel, IBM, GM, and PayPal.
Not arguing that at all. I fully agree. There are a lot of smaller startups that fail to get past the “tribe” level due to founder’s syndrome though, among many other factors. It just reminded me of that right off the bat.
