Over the last decade, I've built three businesses:

1. the first was bootstrapped with customer revenue,

2. the second was financed via a non-dilutive loan

3. the third, funded by selling equity.

This journey taught me the value of cash flow early. Instead of growth at all cost, focus on profitability at all cost.

The goal is (income > expenses) as soon as possible.

Why is this important?

Lack of profitability is the danger zone.

80% of Businesses Fail Due To a Lack of Cash -

source: entrepreneur.com

Let’s dive in:

Option 1: Finance with customer revenue.

Ideal for start-ups without infrastructure needs, suitable for drop-shipping, self-provided services, or homemade products.

It’s about acquiring customers (sales, sales and more sales) profitably and enough of them to cover expenses.

Remember:

• Keep expenses to a bare minimum

• Founder does everything

• Sales are top priority

• Margins matter!

KPI’s to track:

1. CAC: Cost to acquire a new customer.

2. Runway: Time before running out of cash.

3. Gross Margin: Revenue minus direct costs.

4. Monthly Burn: Cash needed to pay expenses.

(Read more about Key Performance Indicators here)

Another option: Secure customer advances to pre-purchase products for a discount or special perks.

If acquiring customers requires upfront capital, let's explore option 2:

Option 2: Investors

This is for businesses needing upfront investment in software, infrastructure, product manufacturing, or hiring before acquiring customers.

Goal: Secure enough investment to reach break-even or the next milestone for future funding rounds.

Let’s talk about getting investors by the stage of your company:

Stage 0: Idea stage: This is the initial funding stage to raise from friends an family. A SAFE or convertible loan is used for this stage.

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Stage 1: Angels: You have a prototype and positive customer feedback and/or early revenue or Letter of Intent (LOI).

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Stage 2: Seed: Mature prototype of early product and revenue. Seed Stage investors will want to see a clear path to profitability.

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Stage 3: Series A: Investors who invest at this stage, expect to see a min of $1M in annual revenue.

Here is a more detailed view of this in one of my earlier posts.

Let’s look at the remaining options:

Option 3: Capital without giving up equity:

These include:

• Grants

• Crowdfunding

• Strategic Partnerships

• Incubators and Accelerators

• Loans/Debt, including SBA loans

• Pitch competitions with cash awards

• Government and Small Business Programs

Key take aways:

• Cash = lifeline

• Customer or investors?

• Move fast. Speed matters.

Thank you for reading!

Read my book recommendation and bonus tip ↓

My Book Recommendation:

"Profit First" by Mike Michalowicz, a 5-star personal favorite.

This framework transformed my first business from a mess into a profitable, organized company. (literally overnight)

Bonus Tip:

Heard of zero-based budgeting? It’s a game changer.

This means allocating every dollar of projected income to a specific expense, leaving no money unassigned. Giving every dollar a job.

This video explains more about Zero Based Budgeting.

You can do this in any program, even Excel, but I recommend the YNAB app, which I use and love.

Till next week,

Noemi