2 kinds of people

Someone smart once told me that in business, there are 2 kinds of people in the world: those who have the money, and those who need the money.  I have a lot of “2 kinds of people” sayings in my life, but this one pops up for me all the time.

I don’t mean this in an Ayn Rand kind of way.   It’s more of a practical saying to think about what’s going on in a transaction, a term I use loosely.

Example: you’ve just raised financing and “have the money”.  Now is when the non-formula lenders of the world will offer you options for having more.  When you “need the money”, and they have it, you often can’t get it.

The corollary is that you shouldn’t try to raise financing when you have your back all the way to the wall.  This is something that seemingly every startup knows, and yet the number of close calls I’ve seen suggests that it’s an axiom often unheeded.

Example 2: you have sold to a customer but haven’t collected on your invoice yet.  They ask for changes to your product, or a little more help installing it.   They have the money.  You need it.  It’s difficult to extricate yourself from this, especially if it’s an enterprise B2B sale.  If you are in a B2B world selling with real COGS and lead times, always try to get 50% up front.  Extend credit reluctantly.  It seems tempting and almost always comes back to bite build-stage startups.  To use a phrase – you don’t “have the money”.

Example 3: you have a consultant who is performing poorly in all areas except sending invoices.  We’ve all had consultants like this.  I’m not suggesting that you don’t pay someone for services rendered under a contract you’ve both signed.  I am suggesting that because you have the money, and they need the money, you have the ability to force timing on a much-needed conversation.  At some point, even if they have been very difficult to get in touch with, which happens, they will contact you.

Example 4 (last one): you are running a company that is shutting down.  I have personal experience with this unpleasant experience.  However, once you have fulfilled your legal obligations to your employees and the taxation authorities, you actually are in the unique position of having the money while your vendors need the money.  The axiom holds true even if “the money” you have isn’t sufficient to meet your obligations.

Which is why — while it’s natural to be in a position to need the money (that’s business after all), ideally your CFO can keep you in a position where you don’t need all of it.

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