A start-up funded with a cash stake from family, friends, and fools, supplemented by available savings has in its future one of only three options.
- It runs out of cash before the end of the ‘runway’. Crash and burn.
- It extends the runway by finding more cash, usually from equity injections. This generally requires that an MVP (Minimum Viable Product) has been produced. MVP is a term usually associated with a tech start-up, but is just as applicable to a local accountant or plumber hanging out their shingle.
- It achieves ‘lift-off’ before the end of the cash runway. This makes it easier to attract the necessary second round funding to scale from further equity or loan funds based on the expected cash flow from the expanded enterprise.
Assuming the start-up succeeds at option three, it is no longer a ‘start-up’, it has become a business.
These are very different beasts.
The start-up by necessity is acting to attract further investment. This is available from funding institutions of various kinds, and from those very early adopters of a new product or service who value the buzz of being early adopters, the risk takers. Those running ‘start-ups’ need to be highly ambidextrous, as they must work on the ‘product-market fit’ as well as continually chasing the next round of finance.
Once it has become a business, ‘lift-off’ has been achieved, the focus must be wholly on serving the chosen customer set, or the pack of cards will fall, eventually.
