The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “How do you move your company forward after a huge setback?” is written by Deb Streeter, senior professor of personal enterprise and small business management at Cornell’s S.C. Johnson College of Business.
For young entrepreneurs, one of the biggest shocks of being a startup founder is that life at the top is lonely. Imagine a startup that was birthed from a university incubator or accelerator. The entrepreneur gets money (from family, friends, angel investors, or even venture capitalists) and starts to grow the business. Quickly, she finds that the environment is much lonelier than she thought. In school, she might have had the ear of other students, experts, and teachers, but now, it’s much more of a solo gig, and one in which she isn’t really allowed to express doubt or ambiguity.
The marketplace can hold cruel and harsh realities, but no crying in baseball, right? The early months and years of startup life require a lot of decision-making, and there are no answers in the back of the book. Typically, at each stage, the stakes get a little higher in terms of the financial, personal, and emotional risks.
As the startups go through the inevitable highs and lows of the early years, the entrepreneurial leader finds that buoying the spirits of the team rests on her or his shoulders. There is a constant need to maintain a face of public optimism, even during times of deep personal doubt. Who can the entrepreneur turn to when uncertainty and fear creep in? Not the co-founders or the rest of the management team, as they look for encouragement and leadership from the person at the top. Not the spouse, who may need reassurance that the risk that has been added to their personal lives is going to be worth it. Not extended family members, who may have money at stake in the business. And not business advisors or investors, who have invested time and capital in the leader and expect him or her to be resilient and inspirational.
Some of the most successful entrepreneurs I know have found a trustworthy advisor/counselor who has no attachment or stake in the business, but is fully invested in the entrepreneur and sees the business activity as important, though secondary. All conversations are considered confidential, and there are pathways for “emergency sessions,” in which the entrepreneur can talk through decisions or situations while the advisor listens. Few young entrepreneurs think they will need this type of support, but in my experience, the loneliness of startup life is universal.
Startup advice usually includes the saying, “Cash flow is king.” It is true that managing cash poorly can result in a company choking to death even while having commercial success. For example, if the sales team lands a huge order, but there is not enough cash to buy the raw materials and pay the manufacturer, the business will flounder. Or if a startup is operating in a brand new market, it is tricky to anticipate the point in the revenue growth curve when sales will go from slow, steady growth to a strong upward trajectory. The founder has to time expenditures so that no cash is wasted during the waiting period. The tipping point is not typically controlled so much by internal actions, but by larger market forces, so the company must hoard cash while waiting. But starving the company of cash can leave the startup ill-equipped when the tipping point does happen. Put succinctly, cash flow does matter for new companies.
However, it is a pervasive misconception that everything will be fine once the money has been raised and the cash is managed. The fact is that cash is not the only critical player. In almost every case, people issues turn out to be the primary determinant of what happens in startups. Here are some of the people choices that have to be right in order for success to follow:
- Founders: nature and temperament of the people at the top
- Investors: expertise and chemistry with the startup team
- Employees: talent and personality mix of new additions to the company
- Suppliers and buyers: relationships with the people in decision-making positions
Bad chemistry between and among any one of these groups of people can derail the company. Startup teams are like marriages—the divorce rate hovers around 50%. That means that emotional intelligence and relationship management can matter just as much as financial management. If cash flow becomes an issue, the right people can correct it. But if the people issues go south, not even great cash management can save the company.