My childhood programmed fiscal responsibility into me. The constant financial tension that ran through my house when I was a kid made it so I was wary of getting myself into a situation where I spent more than I had. As a result, I consciously feared financial trouble. I credit these financial trials and tribulations of my childhood with pushing me to focus on personal financial success.
Even though I have more money to play with now, and my family takes big financial risks, we are nonetheless still financially responsible. I can’t help but link fiscal responsibility to investing and running companies. I frequently lament about the insanity of high valuations and huge amounts of capital being tossed at founders and companies, all of which makes zero sense to me. I spoke to someone a while ago that raised $10m without an idea really flushed out in an industry that he had never been in. This is not always the case, obviously. On the other hand, I am seeing companies who are under-capitalized that are making it work with very little capital. I realize that there are no rules here and trying to understand why this happens is just pointless.
There is a balance between spending money to make money, aka spending money to grow a company. Yes, it does cost money to build a business, and profitability takes time, but focusing on fiscal responsibility from the onset is absolutely crucial. What is the true ROI on those costs? How quickly can you get to profitability so you can be master of your own destiny? Take a look at StitchFix. Katrina Lake only raised $35m and figured out how to build a business and an IPO. She didn’t raise hundreds of millions. I don’t know Katrina personally, so I have no insight into how she built the business, but if she did it with $35M then she had to be very smart with the capital she had.
A reader of this blog sent me the following quote from Robin Williams in the 90s: “Cocaine is God’s way of telling you that you have too much money”. This quote perfectly captures current behavior in the start-up world, pointing as it does to fiscal irresponsibility.