Read time: 7 minutes

Welcome to our latest edition of the newsletter! Today we will be embarking on a mini-series of lessons on how founders can regain control of their startup’s fate and go from raising funds to survive to raising funds to thrive. This mini-series will contain six editions where we will show you how you can turn the power tables and set your startup up for success by embracing the right fundamentals and through pinpoint execution.

The objective of today’s lesson is to establish the key difference between raising from a point of strength vs. a point of weakness/desperation and how to set your startup on the right path to success.

To best illustrate this scenario, we’ll be telling the story of two startups. A startup where the founder’s main focus was on fundraising and through a combination of luck, determination, and persistence managed to raise funds for their startup but go-to-market foundations were never really taken into account or deemed as important.

The second startup decided to take a different approach…This founder decided to take the unconventional path of focusing on the fundamentals of business and through blood, sweat, and tears, finally managed to build something that delivers value to its customers and take it to the market with nothing but the ability to execute and listen to the market signals without the luxury of burning investment capital.

If you are a founder and are reading this, it’s very likely that you feel related to one of these startups’ stories…for those in the first bucket, this will help you realize how you can regain control of the “boat” and steer your startup towards the right direction before you run out of runway. For those in the second bucket, this will help you focus your efforts on the right things so you can increase and accelerate your outputs.

Right, so back to the story:

The 18-month Runway Honeymoon

Congratulations! Round A funds hit John’s startup bank account, and he has lined up a few PR articles and photograph sessions to show his startup’s most recent success and company valuation, but most importantly, it’s now time to put the $10M in capital to use.

-The moment he raised, John had $150k in ARR and a $330k monthly burn rate (~2X), and his goal was to reach $2M ARR within a year and a half to then get a new round of funding. Although John was certain that this goal could be met, the revenue generated before came from customers who were part of a long POC or were 1st or 2nd-degree connections, John didn’t have any successful methods for finding leads, turning them into opportunities, and ultimately turning them into customers.-

1. Appearance of Success > Actual Success

“The first thing we need is a big luxurious office!” John thought. He managed to get an incredible office with an amazing view, top-of-the-line interior design, multiple meeting rooms, a large kitchen, and a lot of space.

New Monthly burn rate: $350k

2. Growing headspace, not revenues

After moving into their new offices, John now wanted to expand and grow the team, so he decided to make a few hires:

• 3 Sr. Software Engineers → Gotta develop new features faster

• Head of Product → I need someone who can speak to the users instead of me

• Head of Sales → I don’t like and we don’t have any kind of process in place so I’ll bring someone to implement it from scratch

• Head of Customer Success → I need someone to manage the customer success team since I’m moving to a more “strategic role”

• Head of Marketing → We need to invest in marketing to acquire new customers, we can now spend and afford a higher CAC

New Monthly burn rate: $500k

3. The calm before the storm

John had an incredible office filled with a team of 30 employees, and the spending spree began!

Without any strong foundations in place and the startup’s inertia being too embedded to change, things that seemed to be positive on the surface but a ticking bomb in reality, started to mount up:

• MQL = SQL → Any lead was added as a potential opportunity rather than properly qualifying them

• Long unpaid POCs → were reported as actual customers and ARR before they converted

• Vanity Metrics → Vanity metrics determined where should the startup focus on

New Monthly Burn Rate: $600k