How money can mess up your startup

Edited excerpt from MailChimp and the Un-Silicon Valley Way to Make It as a Start-Up by Farhad Manjoo:

Start-ups fueled by venture capital often need to figure out how to run like ordinary businesses; they embark on unsustainable growth, they forget about earning money, they don’t learn how to weather tough times. The tech economy is littered with companies that raised too much money — and suffered for it.

“One of the problems with raising money is it teaches you bad habits from the start,” said Jason Fried, the co-founder of the software company Basecamp. “If you’re an entrepreneur and you have a bunch of money in the bank, you get good at spending money.”

But if companies are forced to generate revenue from the beginning, “what you get really good at is making money,” Mr. Fried said. “And that’s a much better habit for a business to work on early on, to survive on their own rather than be dependent on money people.”

Notes:
(1) Thank you Russell Rothstein, Founder CEO of IT Central Station, and Zach Abramowitz, Founder CEO of ReplyAll, for recommending the article.
(2) For startups that have already taken VC funding, see (i) Give your startup time and options — burn less (ii) Get to profitability — here’s how, and (iii) “We simply can’t cut costs without hurting our growth”.
(3) Cf. Why startups shouldn’t scale prematurely.

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