Nickels out of toilets

One of my favorite comments that I have ever heard concerning what types of entrepreneurs are successful was from venture capital's wunderkind Mike Moritz from Sequoia Capital.  Mike was on our Board at Atom Entertainment and I remember him telling me years ago that he liked entrepreneurs (and their cultures) that "dove into the toilet for nickels."  While the visual may not be universally appealing, I believe in this wholeheartedly. 

You can't teach someone to be scrappy.  They just are scrappy.  I have found it very difficult to hire people form big companies and have them adjust to the real-world of a startup.  It is a shock to their system.  In fact, many big company types can't adjust at all. When I talk to other startups, a couple of back-of-the-envelope questions are always in my mind that act as a litmus test for scrappiness (w/out having to look at their cash flow statements):

• Does the CEO have an administrative assistant (or do they book your own travel, appointments, etc)?
• Does the company have a tight T&E philosophy? Are they booking travel using discount sites like Priceline, Hotwire, Expedia?
• Is the computer hardware purchased either used and/or through eBay?
• Did the business get the cheapest rent that they could (try to get the cheapest Class B space that you can get assuming you need 165-200 square feet per employee)?
• Are they paying for "senior" consultants to do roles like business development, marketing, etc?
• Does the startup use recruiters for non-executive positions (more on recruiters in an upcoming post)?
• Does the business have only two management layers (aka from the coder to the CEO) for an under 15-20 person business? 
• Is the business using Amazon Web Services (Simple Storage Service, Elastic Compute Cloud, Simple DB)?

If I get more than a couple of no’s out of the list, then I start to get worried (and very opinionated).

One of the scrappiest examples I thought of as I was writing this post was how the original founders of hotels.com (Dave Litman, Bob Diener) would star in their own TV advertising because they were too cheap to pay for actors.  It was basically them in different scenarios negotiating better deals (e.g, one memorable ad had them at the ballpark negotiating down the price of their hotdogs). 

Remember that your burn rate is a very real thing.  You need to manage it and savor every nickel.  As your business ebbs and flows, you’d much rather be in a position of financial strength then down the proverbial toilet.

Comments

[Bruce P. Henry]

Tim Besse told me once that the only reason a company goes out of business is because it ran out of cash. I've always remembered that.

PS - I think you want a "no" for the "Does the CEO have an administrative assistant" question.

[Alan]

Thanks for posting this Matt. 'Nickels out of toilets' is now one of my new favorite phrases.