A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

“The startups that really get hosed are going to be the ones that have easy money built into the structure of their company: the ones that raise a lot on easy terms, and are then led thereby to spend a lot, and to pay little attention to profitability. That kind of startup gets destroyed when markets tighten up. So don’t be that startup. If you’ve raised a lot, don’t spend it; not merely for the obvious reason that you’ll run out faster, but because it will turn you into the wrong sort of company to thrive in bad times.” — Paul Graham, co-founder, Y Combinator

Graham’s comment is from an email he sent to his portfolio companies in response to the Facebook IPO fiasco.

While everything he says is true, the spending standards he recommends were just as important before Facebook’s IPO as they are now.

One of the great attractions of startups has always been the lack of bureaucracy.

However, when founders jettison financial controls in the name of eliminating bureaucracy the only thing they accomplish is to show off their own ignorance.

Would you even consider designing a product from start to finish without detailed specification? Or  design reviews? Or market feedback? Or testing?

No?

Then why would you consider running your company without viable fiscal controls?

Flickr image credit: HikingArtist

This entry was posted on Friday, June 8th, 2012 at 1:15 am and is filed under Entrepreneurs, If the Shoe Fits. You can follow any responses to this entry through the RSS 2.0 feed.
Tags: bureaucracy, consequences, financial games, ignorance, Paul Graham
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