It seems to me startups can be divided into two major groups: those that intend to make profit and those that intend to consume capital. Ostensibly every startup wants to grow big and make millions in profit but observation of their behavior implies otherwise.
Burning VC money is actually the smart way to make money as a startup founder. Buy a fancy suit, make a shiny slideshow, throw around some buzzwords, and rake in piles of money from wealthy wanna-be investors who wouldn’t know a router from a Roomba. Rent a company house, lease a company car, eat at company lunches, go on company retreats, then pay yourself six figures for doing all that “work”. When you run out of cash, beg for more. When rich idiots get tired of subsidizing your lifestyle, blame the economy, the competitors, the employees, or whoever you can. Rinse and repeat.
The alternative is to actually work. It’s a foreign concept to many these days. Since profit is a function of income and expense, when there isn’t enough income you have to cut expenses. Personal frugality is not as fun as pissing away other people’s money. It may not ever pay off either. You could work 60 hour weeks for years only to have the whole thing fall apart for reasons outside your control. At best it pays for a handful of people to live a modest lifestyle.
So how do you tell? Seeking VC money is not an indicator alone. Some companies fail to get VC funding despite trying. Others use VC funding to seek profit in earnest. Profit itself evades pursuers more often than not. Like anything else in life, you see true intentions when a mutually exclusive choice arises. Look at executive compensation. Do the take a modest salary until profits justify the expense? Do they forego payment entirely when money gets tight? Do they have the company pay for their housing when it can’t even cover the office out of revenue? Will they take a substantial pay cut in order to hire necessary talent? Do they buy toys and throw parties on the investors’ dime? Do executives go on long vacations before managing to turn a profit?
It’s not cut and dry either. I worked for one executive who leeched housing off the company (in an expensive city) but was willing to cut his (moderately high) salary in half to take on a skilled developer when the opportunity arose.
Both types can benefit you as an employee as long as you know which type you are in and what phase it’s at. Capital burners are all fun and games in the beginning but become a stress-filled psychotic nightmare when the money runs out and the technically incompetent executives panic to keep up the facad and bring in another round. Small profitable startups don’t grow into billion-dollar unicorns. Life is slow and steady but you have to get real work done. You won’t be able to come in and screw around four out of five days per week. The managers will also know the difference between real productivity and the illusion of it. I’ve worked in both and don’t prefer one over the other. You have to keep your eyes open and know when to jump ship in any company, regardless of intent.
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