How Much Cash do Startups Need?

25th November

How much cash do startups really need? In my opinion just enough to keep it afloat. When I discuss it with first-time startuppers, they look at me in disbelief as they think that more cash is always better. Well, not necessarily. Let's look at Google and Apple: how much money did they have at the very beginning? Not much. The same is also true for Outfit7.

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Lack of cash forces you to move quickly, stops you from spending resources on unnecessary things, it forces you to keep the focus on the most important thing: how to become profitable. When you are working within those limitations, you need to do a correction of your course as soon as you figure out that you are not doing something in an optimal way.

Lack of cash forces you to move quickly, stops you from unnecessary spending and it keeps your focus on how to become profitable.

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Learn & move

In Outfit7 we made quite a few unsuccessful apps before our first hit: Talking Tom Cat. We have learned a lesson and we have moved forward really quickly, as we didn’t have time for regrets. We were burning through a limited supply of cash and we were aware of that. We also didn’t have enough cash to build a product and think about monetization at a later stage. Even a simple monetization can change your fortune. And therefore, Talking Tom Cat app has used ad monetization since its first release.

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Thinking out of the box

And after Outfit7 already became an established company, I got another idea: to make a new kind of advertising, where players would not be rewarded just for installing new games, but for playing games that were advertised to them. The idea is simple and the guys at Google were impressed and said: “Kudos to you guys.”

Bee7 spinoff

We did a spinoff called Bee7 and it failed. Why?

In short, we were not hungry.

Even as it was a spinoff, we didn’t want to discriminate against the people working for Bee7. Some of them came from Outfit7, and Outfit7 was already a company with almost 200 people. We had good salaries, stock options that already had value, we did planning and didn’t make changes so rapidly and we knew that a bad couple of months would not kill the company.

Combined with another unfortunate event, the failed launch of a new app at Outfit7, it also forced me to spend more time with Outfit7 and to mostly leave the product team of Bee7 to their own devices.

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The pressure of low cash

And if I look back at how Bee7’s team behaved and how it was different from early Outfit7’s days,
there was no insecurity. They were all members of a broader family (combined with Outfit7). They knew that their salaries were secure and their stock options were doing well (as stock options combined both companies Outfit7 and Bee7).

Outfit7’s founding team felt the pressure of low cash and we wanted our products to be out as soon as possible. We worked late many times to achieve this. On the opposite side, Bee7 started with a bigger team and as everyone felt secure there was no pressure. Changes in the product took even months to implement. The sales team was not successful and there was no big deal about it. Everyone knew that Outfit7 would provide more cash when needed.

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Security vs Hunger in Startups

When we got so far that we started Outfit7’s sales process, we had a problem: Bee7 presented an unprofitable asset, so we had to shut it down and from this point on it was used only for our internal promotion.
There is no guarantee that Bee7 would make it if it would be hungry. But its chances of survival would definitely be much higher.

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