The single most important advice I have ever received as an entrepreneur, is this:
It’s all about cash
I could give you a lecture about system design, having a vision, being able to orchestrate the activities of other people and being a leader and all these other good things that I’ve written plenty other blog entries about, but at the end of the day, assuming you’re in a business setting or a commercial setting, it is all about cash.
You can’t fake it
You can’t manufacture a bank balance. All too often entrepreneurs are focused on the revenue-line or on other metrics which are wonderful when you’ve gotten there or when your business is established or when you are in the “business as usual” mode, but those are luxuries that you don’t, and shouldn’t, and can’t, have as an entrepreneur in a start-up environment. It’s all about cash.
You pay your people with your cash. You invest to grow your business with cash.
Cash is the ultimate measure of your performance
Not EBITDA (earnings before interest, tax, depreciation and amortization), not net income, not growth of revenues or subscriber acquisition, not growth rate of this or growth rate of that.
I’m not saying those other metrics aren’t important, but I have seen too many times in the investments that I am involved with (and others that I’m aware of) that people get themselves distracted from what really matters by the shiny-object of random key indicators.
Track what you need to track, measure what you need to measure, but make sure that one of the things you track and measure is your cash balance and your ability and pathway towards the ability to generate cash. Cash is what matters.
As an illustration, let me give you an example:
If you’ve had a great year and things are going well and the EBITDA is wonderfully positive, try giving some EBITDA to your top employees as a bonus. See how that flies. You’ll be met with furrowed brows and lots of “I don’t get this” or “This is meaningless to me because I can’t do anything with this.” Then try the exact same exercise by giving them cash and look at the difference.
Having a positive or negative EBITDA is one thing. You can get through a negative EBITDA experience. Having positive or negative cash is another thing. You have a very short runway if you have zero or negative cash. And certainly no pathway to the generation of such.
You just can’t fudge cash. So stay focused on that as one of your primary key indicators. Not just on the balance, but on what it is you are doing to generate cash, to grow cash, and to maintain the cash that you have.
That’s the best bit of advice I have both received and that I can give. It’s ALL about cash.