1/32: Building a #StartUp business has similarities to a spacecraft crashing down on an unknown planet. I talk to Founders about this all the time. Unpacked:
2/32: We’ve all seen blockbuster “how the heck are we going to survive” SciFi movies. The one commonality is that there’s an obvious prioritization of what has to be solved and in what order.
3/32: This is because all human beings need 3 things to survive: Oxygen, Water and Food. Without any of them we can’t survive. But, bad things start to happen if we don’t have oxygen for 3 minutes, water for 3 days or food for 3 weeks.
4/32: It’s a truism that our bodies are constantly dying but we reset the clock another 3 minutes every time we take a breath of air, 3 days every time we take a sip of water and 3 weeks every time we eat a nourishing meal.
5/32: This is why in a disaster movie, an oxygen leak creates more urgency than finding out that the ship’s food bank has been contaminated.
6/32: Businesses are no different. At all times they’re either in oxygen, water or food mode. An important skill to develop as a CEO or Board member is how to recognize which mode the business is in and guide it accordingly.
7/32: Oxygen mode is the easiest to understand because a business ceases to exist if it can’t pay its bills. Death by running out of money. When in oxygen mode, resources and mindshare need to focus on only one thing: How to raise more capital.
8/32: Businesses really start to feel the pressure of being in oxygen mode when they only have 2-3 quarters of runway left because raising capital takes time and isn’t guaranteed to succeed.
9/32: A CEO should map out a plan for raising capital from different constituencies and be razor focused on delivering “now” business results that maximize his/her chances of attracting capital to extend the business’s runway.
10/32: This requires focusing on a very narrow set of results that will be used in fundraising to describe the trajectory of a business. There’s no choice but to create a fundraising narrative that’s framed using current results whether they’re good or bad.
11/32: And, the fundraising narrative has to present a story of a bright future with accelerating results. “How much can be learned for how much money and how quickly” is important to a new investor. They’ll want to know their money will be used to prove out the business.
12/32: In water mode, the last thing anyone will want to see are resources being allocated towards tasks that won’t produce near immediate results or learnings that won’t impact the now. Advice will be simple, action oriented and very measurable.
13/32: Food mode is also relatively easy to spot. A business is in food mode when it’s found it’s raison d’etre, is scaling nicely, and isn’t at risk of running out of capital anytime soon.
14/32: The challenges in food mode vary, but advice and resource allocation tend to focus on transforming a “good” business into a “great” business. Building a large, durable and profitable business that can stand the test of time isn’t easy.
15/32: Discipline matters a lot because without the right governance resource allocation can take on a life of its own. Good businesses can devolve into mediocre businesses if left to their own devices.
16/32: Crafting the right agenda that focuses the organization is critical because an organization that tries to do too much fails by being spread too thin and wastes a lot of money along the way.
17/32: A good agenda is transformational and can take the form of 3-5 “corporate imperatives” that are measurable and deliverable over a 2-3 year period. The defined destination should be visionary and inspirational.
18/32: The beauty about being in food mode is that not everything has to go right for the business to get better and better over time. If an imperative isn’t playing out according to plan there’s time to adjust or rethink.
19/32: But this mode can create tension at the Board level, especially if everyone around the table feels like their views of the future possibilities are valid and should be reflected in the long term agenda.
20/32: Diversity of experiences and ideas are great inputs to a company in food mode, but the CEO has to be the one to create the unified vision, imperatives and plan. This is non-negotiable. Full stop.
21/32: Water mode is where most bad advice is given because many CEOs and Board members don’t recognize it as a unique stage of growth. They understand how to direct a company that’s quickly running out of cash (oxygen) and they understand how to give strategic advice (food).
22/32: But water mode is where the game is usually won or lost. In water mode, a business hasn’t yet cracked the code. Some things are going right but there’s a lot left to figure out. The company has capital, but rarely enough for a major initiative to deliver negative results.
23/32: Resources need to be allocated and the team needs to execute with such precision that the business can produce the right “upwards and to the right” results that serve as evidence that the business is on track.
24/32: All results need to be seen as either “proof” or “anti-proof”. Examples of anti-proof: Lower than forecasted growth, higher than forecasted CAC, lower than forecasted funnel conversion, lower than forecasted engagement, etc.
25/32: When anti-proof surfaces it puts the CEO in a tough spot because the entire business is at risk. Each instance of anti-proof requires additional positive proof on other dimensions as an offset.
26/32: When anti-proof surfaces, a company in water mode is almost certainly going to slide into oxygen mode. The business’s agenda will collapse to “things that can be proven quickly” to attract capital that will give the company some breathing room.
27/32: And sometimes not a lot can be proven quickly for a business in water mode. This means that burn needs to be sized to give a company the best odds of delivering proof and raising capital to avoid the slide back into oxygen mode.
28/32: This is where the best and worst advice can surface. Biting off the right, high-odds of success learning agenda paired with the right burn rate is critical.
29/32: Too many Founders raise capital and immediately grow OpEx and SG&A quickly in order to bite off a bold learning agenda. Businesses learn in step functions and costs should follow the same pattern.
30/32: Getting the balance wrong sets the company up for a rocky journey. Bad balance = More time spent in oxygen mode. Good balance = More time spent in water mode.
31/32: The best advice I can give is that a CEO and a business’s Board should always know which mode the business is in and plan accordingly. Advice requires context so declaring “mode” helps everyone get on the same page.
32/32: And in the immortal words of Mark Watney in the Martian: “I’m gonna have to science the shit out of this!”