When the Cash Gets Tight: A Founder’s Reality (Part 1)

One of the most stressful moments in any early-stage company is realizing that cash is running out faster than expected. 

For founders, this moment often feels sudden. One day the company seems to be operating normally, and the next day the financial runway suddenly looks dangerously short. 

In reality, cash shortfalls are rarely sudden. They usually develop slowly over time, through a combination of optimistic assumptions, delayed revenue, unexpected expenses, or simple lack of financial discipline. 

What typically happens is one of two things. Either you're not paying enough attention to your cash situation on a regular enough basis, or you're not getting enough information from your finance team or your accountant, or you are willingly ignoring the signals that are coming your way. 

The most important piece of advice I can give is that in an early stage company, as a leader, your number one goal is to make sure that the organization has enough cash. It's no different than driving a car and making sure that you have enough gas in your tank to get to the next location. 

In the early stages of a company, many founders spend their time almost entirely on product, customers, and sales. Financial management often can become an afterthought. But when cash is tight, you quickly learn that your most important operational metric is not user growth or product milestones — it is runway.

The lesson is that you should always know, with reasonable precision, how many months of cash the company has left. Not roughly. Not “around six months.” And you should check this information at least weekly in the early stages of your business and certainly monthly as your business progresses. Anything less than this is executive malfeasance on your part as a leader.

And, you should know what the number is like under several different scenarios.  Come up with scenarios that show what happens if revenue slips? What happens if a major customer delays payment? What happens if hiring does not continue as planned? 

In my start-ups, at almost all times, we had two or three versions of our budgets and cash flows based on various scenarios.

Another important discipline is learning to recognize early warning indicators: Revenue that is slower than expected; Expenses creeping upward; Hiring plans that expand faster than revenue. 

Each of these by itself may not seem alarming, but together they can shorten your runway quickly!  Again, the weekly or monthly reporting against your expectations is critically important here.

The more you monitor, and the earlier you recognize negative signals, the more options you have.