Is your Startup Doomed by Your VC’s Quarterly Reports?

You must be getting a little nervous! It’s June 25^th and the pressure is on. Your chances to effect the data for the Q2 Report is wrapping up in just a few days! How will you make the numbers you promise your VC?  Will you load up your new buyer with more than she needs and more than you can service? Will you have to fudge the numbers …again?

Of course, your VC has a right to quarterly reports. They want to keep track of their investment. If you’re not performing as agreed, they want to know right away. They want to cut their losses, which means you could lose your financing if you don’t make the numbers. Are you getting a little more nervous?

You know if you push your salespeople too hard it will take away from next quarter’s numbers. You know that if you load up your buyers you may lose them due to lack of service. And you know your reputation will be hurt if you don’t service what you sell. In fact, you may not have even fully realize the true cost of sales until you got several months away from that extravagant launch party. The reality of your business is just beginning to settle in. Now you know at least part of what you don’t know. But it’s too late and the report is due!

Just since you started, you have learned a ton. It’s stuff they didn’t teach you in college. It’s stuff that you wish you had known about. It’s stuff that requires actually experience.

You thought your VC knew more about your business than you. You thought they’d warn you. You thought they would be an enabling “partner”. You thought your business plan was validated because your VC funded it.

But no! You are on your own! And now it’s clear that your VC doesn’t really care. He’s spread out his risk like a gambler playing the odds. He’s bet on 10 to 20 start ups like yours, hoping for that one unicorn. Your business is just one roll of the dice. Will you make your numbers and stay in the game or will you crap out?

You are quickly approaching a no-win situation where if you make the numbers, you could lose your business. If you don’t make the numbers, you will lose your investor, and then your business.

The Department of Commerce says that 9 out of 10 businesses fail. That’s why most VC’s play the odds. But the same Department of Commerce also reports that businesses that make it to 2 years are more likely to make it to 5, and those that make it 5, to are more likely to make it to 10.

Having been through it from ideation to monetization, we understand why. In the first 2 years, we found out our cash flow plan was more important than our business plan. As time went on, we began to respect the cost of sales, which generally increased directly with growth. That’s why we created The Barefoot Startup, a more sensitive approach to starting and growing a business. It’s more grounded than bootstrap. It’s being in touch with the environment.   

Just like being barefoot, the Barefoot Startup directs you to learn to walk before you run. It directs you to be more sensitive to the terrain so you don’t fall down. It shows you how to be more flexible so you can make quick adjustments, thoughtful pivots, and remain light on your feet.

Don’t let quarterly reports hurt your chances. Starting a business is challenging enough. Discover and use your hidden resources. Outsource everything but accounting, sales, and quality control. Create revenue earlier with the relatively small, low-hanging fruit. In other words, reduce you need for capital right from the start, and you may not have to play the VC game at all. Ironically most VC’s are shying away from pre-revenue startups anyway. Demonstrating revenue proves your concept, but more importantly, provides a priceless business education. VC’s will line up to expand a proven concept and you will be in a much better bargaining position!

The credo of The Barefoot Startup is simple: Start small. Make your mistakes in a small place. Get your act together before you take your show on the road. And don’t scale to fail …or make your quarterly numbers! By keeping your (bare) feet on the ground and building a solid foundation, your chances of success will increase, and your need for outside capital will decrease!