More Money (Really Means) More Problems

Every Founder wishes they had more money, but we often don't realize what happens when we spend it.

There's this fascinating transition point that we go through as Founders where our problems start with income (because we always start with zero) and then quickly transition to debts (because someone always needs to be paid).

We put ourselves in this dangerous loop where instead of getting ahead on that next round of income, we actually dig ourselves deeper into a hole by adding exponentially more costs—and those costs aren't just financial.

We don't just grow income; we grow problems, and sometimes, way faster.

The Weight of Zeroes

When I was building my first startup with just a couple of college kids on payroll, I was terrified that I wouldn't be able to come up with "over $1,000" each payroll period (remember, college kids) because that was all the money in the world to me. On more than a few occasions, my cash accounts came up short, and I had to spread the difference on credit cards to prevent a small uprising.

At the time, all I could think was, "If we can just make enough income to cover this payroll, I'll never have to worry about payroll again!" And so we did, eventually. In fact, our payroll would grow so rapidly in the years that followed that it mushroomed from $1,000 per month to $10,000,000 per month (not a typo).

There's a point at which the weight of those extra zeros becomes so unbearable that you pray for the days when you could cover a slow month with a personal credit card. The reality is that every bit of growth, every new income level brings with it an exponentially larger liability that makes it harder and harder to sustain. When we were small, we were vulnerable but fixable; when we grow, it becomes geometrically harder to fix.

The Source of Problems

As we add more income, we tend to add more expenses, and every single one of those expenses becomes a whole new trove of problems. For example, we think about raising money to hire more people to solve all of the problems we have. What we don't contemplate is how many more sources of problems that very action will add.

First, before we spend a dime, we've just added a whole new customer—the investor. Now we have a litany of objectives that are important to them (and not necessarily us), which will permanently affect our startup. We've just planted a whole new crop of problems, just waiting to harvest (wait till the next funding round to see...).

Next, we hired all of those people, and guess what? They have all kinds of new problems. Now comes the politics, bureaucracy, and constant oversight that didn't exist five minutes ago. We hired people to solve "product" problems, but now all of a sudden we've replaced that with culture, staffing, management, and communications issues. Of course, we're going to need to hire more staff to fix those.

"Well, I'd Rather Have the Money..."

Trust me, I get it. It's generally better to have money and create liabilities than to not have any money and not have the choice. This really isn't a case against income—I have none. It's a case against what we do with income, and more specifically our misunderstanding of how more growth (income, investments) isn't all sunshine and rainbows.

Our growth is a serious weight and liability that absolutely has to be kept in check. Nothing would make me happier than to hear a Founder say, "We just doubled our revenue, but we're going to hold off on hiring and adding more people until we know for sure it will be a net positive." That would actually blow my mind.

Unfortunately, we normally can't make this call until it's too late—until we've already saturated ourselves in liabilities that come with growth. So in the future, when we hit that next level of revenue or that next funding round, let's stay ahead of it. Let's talk about how to take the win (the money) while minimizing the losses (the liabilities).

In Case You Missed It

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