How CEOs MUST Use CASH for Growth!

J-Rise, how does a CEO gauge whether their business is at the investment stage or not? Do people often seek investment they don't need?

Yeah, I think also, Evan, people probably, and I saw this a lot back in the crazy kind of dot-com boom, 'cause I'm in California, people raised, it's crazy to say it, but almost too much money. And when you do that, it just drives the whole mentality of the DNA of the company in the wrong direction. And it's a real great sense to almost bootstrap a business and have that hunger every day and worry about making payroll and sitting down on Sunday evening and working out your expenses, your cash flow, your pipeline and all that sort of stuff. So I think my— and I learned this from you actually— is kind of make money before you raise money. Let's build a business, build value for customers. And obviously you need to kind of keep a real tight weather eye on the cash flow and the fuel of growth, which is cash. But you, you kind of really want to focus on the fundamentals of business, and that's outward-facing, that's on the market and the customers and the value provided. And then you can build your financial model, and it doesn't have to be, you know, a 3-dimensional or 16-dimensional spreadsheet. It can be pretty simple. And then really focus on running the business and generating the cash you need to fuel the growth and then go and get investment when you need to at the right points in time.

Yeah, I think to add to that, I think too many entrepreneurs do start looking for capital too soon and you're gonna lose too much of your company, right? 'Cause there's a lot of risk associated with a startup and any angel investor, VC coming in, if they see a lot of risk and they want more equity, equity as a result. And so the more that you can show momentum, some traction, some sales, some media, something, something that separates you from everybody else, then your valuation will get much richer and it'll be a lot easier to close the sales. Uh, we would always in the venture capital firm try to look for companies that wanted growth capital, not startup capital. So like you've shown a proof of concept that works, maybe you're selling in a local geographic market and now you need money to expand. That expansion capital is the easiest kind of money to raise, where the startup capital is the hardest. So if you don't absolutely need it, I try to figure out a way to bootstrap it up.

Yeah, Evan, the key thing is, when you said that, you've got to know how you're going to invest money. And even the words I use, I'm pretty pedantic on this. I hate the word spend, because as soon as you spend money, it implies waste. If you want a return. So as an entrepreneur, you should have a really kind of keep a tight eye on when do you need to raise money to fuel the growth. And then you need to know how you're gonna invest it. There's no point just raising money and having $2 million in the bank and not knowing how you're gonna deploy it to grow your business at scale.

That's a really interesting distinction. Do you encourage that? So you have a staff of over 10,000 people, 14,000 people, something like that. Do you encourage them too to eliminate the word spend from their vocabulary and look at invest?

Yeah, and when I was actually another CEO, this is about 15 years ago, one of my VPs of marketing came in, and you can imagine in those days, 80-slide PowerPoint deck, you lose the will to live, and the last slide, slide 79, is the punchline, I need a $15 million budget for a brand campaign or something happening. I said, look, right, kind of get the elephant in the room, let's get real about this, and the guy kept on talking about spend, spend, spend, and I said, wow, we're not going to spend money in this company ever like drunken sailors. We're going to kind of focus on investment, return on investment. And it's what we talked about before, test driving stuff, test drive stuff till we get the data to know what really works so we can really scale our business. And I think in the world, you know, it's great digital economy, digital marketing, everything's accelerated now. So what took years takes weeks and months now. And I think you can really, from an investment point of view, you can actually, and we'll talk about this I'm sure, should I go for one big lump sum of investment or should I do it in a number of small kind of incremental series? And I would always advocate go for kind of small test drive stuff. And to your point, you don't give away half your business and lose total control of it.

Yeah, I love that. And so again, I love the distinction between spend and invest. And to add to that point of, raising in rounds, uh, what you can do is bet on yourself. And so you can raise your first round at maybe a million-dollar valuation and then say, hey, if I hit these milestones, will you come and fund me but at a $1.5 million or $2 million or $5 million valuation? And so you're betting on yourself to actually go out and hit those milestones. But if you do, then it's a lot less riskier for the investor to get involved in. So you can end up raising the same amount of money, but over time Uh, so you get the money you need to grow and you've lost less of the company through dilution.