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When less is more

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Money doesn’t necessarily mean freedom. Yet the ability to maneuver in response to business challenges is the one thing a startup founder needs most. Some..
“I was thinking, actually, what if you had asked for less?” Pied Piper’s Richard Hendricks asks a fictional founder in a bar scene in the season 2 premiere of HBO’s Silicon Valley .
The other founder, Javeed, of “Googlibib,” reflects. “It might have been easier to hit more benchmarks… we wouldn’t have faced that down round.” Growing increasingly despondent and loud, he continues, “We wouldn’t have had to settle for acquisition… We could have done a legit series B… I’d still be CEO… I’d probably still have my girlfriend… Why the f*** didn’t anyone tell me I could take less? ”
It plays pretty funny on the screen, but this fictional interchange illustrates a very real challenge entrepreneurs face: Money doesn’t necessarily mean freedom. Yet the ability to maneuver in response to business challenges is the one thing a startup founder needs most. Some of these decisions are minor: Should we give an early customer a big discount in order to close the deal? Others are existential: Is it time to sell the company?
As grueling as it can be to make a call on the hard decisions, it’s much worse to be unable to make a key decision at all — to be forced to take an action due to financial restrictions or other constraints.
When you’re building a company, you need to maximize your degrees of freedom — you need to have the widest set of options available to you for key strategic decisions.
Conventional (and even fictional!) startup wisdom says that the best way to maintain your degrees of freedom is to raise more money than you need so that you have a large war chest of capital on hand. I’m here to tell you that, based on my experience working with hundreds of startups, that one of the best ways to improve your optionality is to ignore that conventional wisdom and instead stay extremely efficient in both your operations and your fundraising strategy. You can actually increase your degrees of freedom not only by not spending money you have, but by not having too much to begin with. The best move for many startups is to raise just enough money to achieve key milestones.
We call this “just-enough” approach the capital-efficient path. Companies that follow this practice maintain tight, resourceful operations throughout their early stages and only add capital when there are proof points and processes to support it.

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