How does being hard up affect your decisions as a founder?
For most bootstrapped founders, almost all of your potential wealth is tied up in your business. It’s usually extremely illiquid and impossible to value in the early stages. What impact does this have on the decisions you make about your business?
From personal experience, I know that worrying about how you’re going to pay your own mortgage affects the decisions you make about your business in a way that would not be the same if you were a professional chief executive dropped in at the top to run it to serve a disparate group of minority shareholders. When it’s your baby, it’s also your lifeblood, and this can cause you to take irrational or short-term decisions.
I remember being strongly influenced by the change in interest rates in the UK, meaning my monthly mortgage outgoings would triple after a 5-year term came to an end. This was a blessing and a curse - it gave me a serious goal, but it also constricted my choice around timing for exit.
In the funded world, there’s something known as Founder Liquidity. This essentially means giving the founder a bit of cash during an investment round so that they can meet their personal needs (mortgage, childcare, other fees), so that they can worry less about their personal life and focus more on thinking strategically about their business.
This might mean they are now able to say “no” to a large new prospect that’s insisting they change their entire roadmap to suit them. It might mean finally replacing a member of staff you think has been underperforming for some time, but you haven’t had the breathing space to tackle it. It might mean abandoning your current direction and pivoting to something more innovative and risky.
That is why, as I’ve written earlier, I believe it’s important for an advisor to understand your family and personal situation as much as the business. It is vital that other obstacles and worries are removed or resolved where possible for a founder to be able to focus clearly on growing their business.