William (Bill) H. Janeway is the Vice Chairman, Managing Director, and Senior Advisor at leading venture capital behemoth Warburg Pincus. He is also the Co-founder of the Governing Board of the Institute for New Economic Thinking (INET) and part of the faculty of Economics at Cambridge University. He is the author of the new and updated bestselling book Doing Capitalism in the Innovation Economy: Reconfiguring the Three-Player Game between Markets, Speculators and the State.
Bill has spent his entire life trying to answer that question. He was always pretty smart in school and ended up going to Princeton and later on to Cambridge. He eventually stumbled into the world of finance and helping entrepreneurs build their businesses.
When you are building something new, you have to build hedges against things that you can’t know in advance. Part of that is cash. Positive cash flow is the source of the ability to grow without having to worry about being caught by surprise. The internet has enabled companies to grow in ways that allow them to burn cash before reaching profitability.
As interest rates start rising, the digital Unicorns will need to get to positive cash flow sooner rather than later. Even Uber is coming under pressure to exercise discipline and get to where it’s customers are paying the bills and not the investors.
Technology is increasingly accessible and cheap. You can grow your business incrementally without a lot of upfront costs. A lot of new tech businesses are being bought when they are still small, this is often the best way to succeed and is a huge shift in the way technology gets out into the world.
Design your business to be purchased by someone else. You should be asking if it’s the right time to sell at every stage of growth in the new business.
As an entrepreneur, you have one interest which is the growth and the value of what you are doing. Selling part of the business too early to a major customer can potentially short circuit the path to positive cash flow.
When it comes to technology, being different is more important than being better. When it comes to people, the founder doesn’t build a business alone, they need the right team to succeed.
Reference: Doing Capitalism in the Innovation Economy: Reconfiguring the Three-Player Game between Markets, Speculators and the State, William Janeway
Understand the market you are addressing, but make sure you have the cash you need to fall back when things don’t go the way you hoped. A great idea without the cash to put it to work, is just a great idea. You need partners and access to the fuel in order to succeed.
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