Doug Mellinger breaks down startup fundamentals: forget hockey-stick projections. Revenue comes from taking share from competitors, redirecting spending, or tapping savings. Cash flow matters more than growth, and early revenue keeps you from endless fundraising and dilution.
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So how many of you have a business plan that has somewhat of a hockey stick type growth as what you think this business is going to do? Any of you have a plan that kind of looks a little bit like that? Yes. So everyone does. I've never seen one that says, we're going to grow really slow over a very long period of time, and it's going to take 2 or 3 or 5 times more money than we're talking about now. Nobody has that. The one question is, how many people actually have that, actually, as a growth? There's only a very, very, very, very tiny fraction that look like that. One of the things that's important that I think people need to ask themselves the question is, when you project out this sort of growth, if you were to chart the growth of the economies that you're selling in against your chart, the growth of the economies are going to look like this, but yet your chart looks like this. So therefore, the question is, where's the money coming from? And this is, I think, one of the biggest mistakes people make is not answering this question. Because either you need to be able to take money away from competitors, if there are competitors, or you need to convince people to not spend money on something else and spend money and allocate it to you, or you need to convince them to go into their savings and spend money that they weren't planning on spending. Literally, one of those 3 things has to happen. I'll tell you that from a competitive standpoint, when you're going after the dollars from the competitors, most competitors don't like when their sales go down. They oftentimes will try to do something about it, whether it's to actually pivot their businesses to now go in and copy what you're doing, or they are going to lower their prices or they're going to do something else to try to get the distribution channels or whatever to not do business with you. You need to be realistic that just not saying, oh, we're just going to beat them because we're better. You've got to realize that they're going to try to do something against you. Or you've got to figure out what are people not going to spend on. If somebody's going to go buy an iPad, they're not going to go to dinner a couple of times, or they're not going to buy some clothing, because that's the way the economy works. But so few people actually ever think about if they're going to succeed, who is not going to? And so I think that's really important. The second thing that's very important is cash flow. Amazes me the thousands of business plans that I've seen the number of them who actually have a cash flow statement as part of the business plan. They've all got their income statements, but they typically don't look at cash. Cash flow is something that has killed so many businesses. For example, if you're looking at the education world and you're trying to sell to schools, the problem with selling to schools is that their buying cycle is so short And it's literally like once a year for a couple of months, and then it takes months to ship, and then they don't pay you for a while. And so most people, when they look at that, never take into account the amount of cash they need is oftentimes multiples more than what their earnings statement is showing that they're losing because of timing of cash. And so concentrating on cash is very, very important. When you're thinking about your businesses. Another thing is that all of us have blind spots, and mentors are critical. How many of you have mentors today? Great. Get as many of them as you can. And if your mentor is not beating the crap out of you on a constant basis, fire them. Because what you don't need is somebody who's a yes person to you. You don't need somebody who's going to say, oh, you're doing so great. You want somebody who's helping you find your weak spots and is forcing you to go through a growth pattern, because that's what they're really there for. They're there to help you, provide you the resources, and help you through those tough decisions. But I love mentors. I've always had them. I mentor a lot of people throughout my life, and it's just a great symbiotic relationship. if you get the right person to help you out. Networking. My first mentor was a guy named Brad Warner, and Brad was a fascinating guy. When I met him, he was in his kind of late 60s, early 70s. I was 17 years old, and he taught me everything about networking. This was back in the late '70s, and so there was no PCs. We would have, like, from the length from here to the exit sign, he would have 2 walls full of filing cabinets. And we would play a game. He would say, pick anybody in the world that you want to meet. And he would then figure out, and his goal was that he could get to anybody in the world in 3 phone calls or less. And that's what he set as my goal. He said, you've got to go figure out who's on what board and how you would bounce from filing cabinet to filing cabinet to figure out your path of how you're going to get to somebody. There's now a company called RelSci, Relationship Sciences, that actually has automated this whole process. It takes LinkedIn kind of on steroids. It amazes me. Over the years, I've basically been in the collection of people business. When I meet people, I get their cards, I write everything I can about them. What did I learn about them? Where did I meet them? A lot of my cards say, AA Flight 15, New York to San Francisco, and here was the name of their dog, and here's what they do, and here's who they know. That's now all in my CRM system. In here, there's 12,000 people in here. When I'm now traveling around the world, I'm constantly, who do I know wherever I'm going, or if I'm trying to solve a problem, it's about how can you solve problems rapidly and get to the right people. Getting involved outside of your comfort zone and getting to organizations like this, getting to conferences, just meeting people. I'm one of those annoying people that when you're on a plane or you're standing next to me or whatever, I'm going to say hello. I'm going to try to quickly figure out who you are and what you are. If there's something that's interesting, I'm going to continue it on. Everybody sitting next to me on a plane is going to get to know me. This morning, I sat next to a woman who travels back and forth from San Francisco because she works at AIG in New York. We talked quickly about what she's doing. Nice lady, nothing that was going to do with me, and so we went on. But that's the type of thing you have to do because you're gonna be amazed throughout life. The goal is how can you quickly build your businesses, and it's about solving problems. One, which is a joke, don't run out of money. And try to get revenue early. The earlier you can get the revenue, the least amount of money you can raise, the more you're gonna own. And I've seen way too many people start companies, great businesses, they get diluted down because They didn't try to get revenue early on, and they end up in a situation where they've got to raise the money, and they end up giving up their businesses. And it's just sad to see that kind of thing happen. And people need to be in the business— if you're going down a path where you're going to have more money spent than money brought in, then you can never stop raising money. You've got to always be out there building your networks. Because you don't want to be dictated to, you want to be the one dictating what the terms are going to be.
