The War-time CEO

Out of cash

Photo by Edmond Dantès

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Introduction

Iris becomes a war-time CEO.

We meet a new anti-design pattern: Out of Cash.

Mark helps Bob navigate Alice with mirroring.

Back in Wichita

They had worked together at a hot Valley tech startup. Now, they’d be going to war together.

Barry got along well with Iris and Iris tolerated Barry.

Barry knew that Iris could manage money and Iris knew that Barry could sell snow to eskimos. 

They decided that Iris would be the CEO and Barry would be VP Sales of Giganet - software for gig workers. They hired Bob to develop the product and lead the engineering team.

Iris was born and raised in Mulvane, Kansas, population 2,500. Her Dad worked as a jet engine mechanic at the big Cessna factory in Wichita. Her Mom was a housewife. She had 3 older brothers who all played football for the Mulvane Wildcats. The oldest became a star quarterback with the Alabama Crimson Tide. His 2 younger brothers followed in his footsteps, where they established a mini-dynasty. 

Iris ran track with the boys, and was the starting pitcher on her high school varsity baseball team. The first girl in Kansas history.

Iris had always embraced her tomboy side, and enjoyed the adrenaline rush of track meets and power trips of striking out players. She had other dreams and was determined to make her own path, on her own terms. The University of Alabama was not on that path.

After high school, she decided to flee from Mulvane. She enrolled at Cal State Fullerton in the business and finance program. At Fullerton she met Eric, who would take her even further away from Mulvane, population 2,500. Eric enlisted in the Navy just after they got married and signed up for the Navy SEALS. After BUD/S (Basic Underwater Demolition/SEAL) training at Coronado and SEAL Qualification Training, Eric joined SEAL Team 3.

They navigated the cycles of overseas deployments, death and injury. Iris raised twin boys in their San Diego home, with her close-knit support system of SEAL team wives. She did a CPA, and went to work for the IRS investigating tax evasion. After 10 years with the IRS and Eric’s safe return from Ramadi, they made a change.

Eric started a security consulting business for Hollywood celebrities with his SEAL team 3 buddy Jon. Jon and Eric had a profound level of trust in each other. Hollywood was easy-peasy compared to Iraq. 

Iris got a position as CFO at a hot object-oriented database startup in Silicon Valley, making good money over a six-year span. This came to an sudden halt when the startup's founders declined an acquisition proposal, leading to the company's closure with only 3 weeks' worth of funds remaining, resulting in the termination of all employees, including Iris and Barry.

Iris engraved a rule on the palm of her hand after the Silicon Valley experience: “Never run out of cash”.

She was ready to be a CEO. She had the mental toughness of a Navy SEAL wife, competitiveness of an athlete and she knew how to manage money. She would leave the vision to someone else.

Venice 

Giganet collects work hours from gig-worker smart watches and produces all the reports for California state and Federal reporting. As Barry likes to say, "Giganet Fast-Tracks Your Gig Payroll”.

Iris has a meeting with Barry and Bob. 

Iris, “I have good news and bad news, which do you want first?”

Barry and Bob, “Start with the bad news”.

Iris, “The bad news is that we are not generating cash fast enough to survive losing a big customer.”.

Barry and Bob, “And the good news?”.

Iris, “The team is amazing. After a year, we’re now at $2.2M ARR (annual recurring revenue). We are cash-flow positive. Our revenue and wins with LA County, San Jose and Sunnyvale have put us in a strong position to raise a $10M Series A round”.

Bob, “And this is bad?” 

Iris, “Clearly yes. It will take us realistically, 12-24 months to do the Series A. During this time, I would be occupied full-time in the fund-raising and due-diligence process”.

Bob, “That’s good news. It means you’ll have to stop doing project implementations yourself, that’s a plus”.

Barry smiles and high-fives Bob.

Iris, “This is not a joke boys. It means we’re going to war. You remember that we were competing with Ernst and Young at the City of Sunnyvale deal? I got a call yesterday from a partner at the EY San Francisco office. He asked me up front if I’d like to sell them the company. After Pesya helped us kick their ass, I don’t think so. I told him that I’d be delighted if EY joined our enterprise partner program. I told him that Barry would call him”.

Iris, “Here are the options”.

1. Do a $10M Series A round and take the risk of closing the company if a major customer leaves.

2. Do a revenue-funding deal. I can get $2M in 2 weeks, it will cost us $700K for a 1 year period.

3. Do-nothing. 

Barry and Bob, “What do you suggest?”

Iris, “I suggest Option D, Go to war.

Cut everyone’s salaries by 10%. Amp up sales by 50% this year. Return the pay-cut in 12 months if the team achieves $3.6M in sales. We need to accelerate adoption by our existing customers. Since they pay by the user, we can get a lot more out of our existing customers by getting more of their gig workers on the platform. We need to get into construction, healthcare and hospitality. There are several specialty tax accounting companies that service Uber and Lyft. Let’s see if we can build some bridges. Barry will lead me on that mission and Bob will provide me supporting fire. 

If we succeed - 2 important things will happen over the next 12 months:

a) We’ll have $1.5M of our own cash in the bank. 

b) We can do a Series A at a much higher valuation.

We need to sell this to the team - Lena, Yasmin, Pesya and Justin.

Madison is on a contract. Barry - I want you to put an accelerator into her package. This is what I suggest:

• Accelerator rate at 100-150% of quota: 15%

• Accelerator rate for 2-year deals: 20%

• Accelerator rate for 3-year deals: 25%

Let’s schedule a team meeting for tomorrow at 8:00 so that Lena can join the Zoom meeting from Tomsk.”

Barry and Bob had never seen this side of Iris. The determination and do-it-my-way-to-succeed side of her. Not tolerating deviation from her plan. 

Iris was now a wartime CEO. 

Peacetime CEO focuses on the big picture and empowers her people to make detailed decisions. 

Wartime CEO cares about a speck of dust on a gnat's ass if it interferes with the prime directive.

Peacetime CEO thinks of the competition as other ships in a big ocean that may never engage. 

Wartime CEO thinks the competition is sneaking into her house and trying to kidnap her children.

The next morning, they had a Zoom meeting with the team. 

Iris explained the plan in her quiet, matter-of-fact Navy SEAL wife manner. The team came onboard.

If you are super-competent, people will trust and listen to you.

Run out of cash anti-design pattern

One of the surprisingly stupid anti-patterns in the tech industry is failing because you don’t know your cash runway. 

But even if you are not clueless, you can still run out of money.

10 reasons you will run out of cash.

1. You Mismanage Costs: Like death and taxes, your costs are more certain than your revenue. It is easy to overspend on cloud and salaries. I’m happy you raised money. Not a reason to give yourself a huge raise.
   
   How to fix this? Manage cost planning and forecasting inside your accounting application. Your cash-flow forecast will be a standard report.     This is important.   If you do it manually in Excel, you can make mistakes and be tempted to fudge numbers.  Don’t.   See Item 10 - “Do not lie”.
   
   Pay attention to your cloud computing bill from AWS, Google or Microsoft Azure. You can quickly run up very large bills, if you don’t architect your solution properly and pay close attention daily to cloud consumption. AWS has cost-optimization tools. Use them.  Consider third-party cloud cost-optimization.
   
   Spend investor money like it was your own money.

2. You don’t have Product Market Fit: When products or services don't address a significant market need or fail to resonate with your target audience, you won’t generate enough cash to sustain your business.
   
   How to fix this? Don’t start the company without speaking to 50 prospective users and understanding how much money they’d pay for your product. Estimate the size of the market for your product, estimate annual growth. Assume you capture 100% of the entire market 5 years from now. That’s a number. Is it interesting or not?
   
   

3. Your pricing is wrong: You can charge too much and then no one will buy your product or too little and run out of cash. Your pricing can be too complicated and slow down your sales and customer decision making process.
   
   How to fix pricing? Deeply understand your unit economics.
   Unit economics refers to the direct revenues and costs related to a business model, expressed on a per-unit basis, often with a unit being a customer. It's crucial for startups as it helps in decision-making, scaling, and sustainability by understanding key metrics like lifetime value (LTV), customer acquisition cost (CAC), churn rate, and more. This approach allows you to assess profitability at a granular level and plan properly.
   
   If you are a SaaS startup, look at similar pricing from competitors. Resist the urge to discount. Never give your product away for free. The worst thing that can happen is a customer will tell you “I love your product, but your pricing is crazy high”. That’s good. People value a Mercedes more than a Ford.
   
   

4. Poor User Experience: Products that are difficult to use, lack key features, or don't meet customer expectations can result in low adoption and retention rates, impacting revenue.
   
   How to fix this? Talk to your customers all the time. Listen carefully. Visit them in person. Fix issues related to low adoption. Find customer satisfaction features - like a Download to Excel button.
   
   

5. Inaccurate Revenue Forecasting: Overly optimistic revenue projections, particularly in the face of uncertain market conditions or customer adoption rates, can lead to financial strain.
   
   How to fix this? Don’t be optimistic. Forecast FCF - Free Cash Flow instead of revenue. Since FCF includes your expenses, this will provide a grounded forecast for your cash runway. If you have $100 in the bank and your FCF is -$25/week, then you have 4 weeks to live.
   
   

6. Don’t Be Afraid To Say No To A Bad Deal. This is huge, especially with enterprise customers.

   1. Long Sales Cycles: The complex decision-making processes and the need for multiple approvals in enterprise customers can extend sales cycles to 18-24 months. Meanwhile you are burning cash. The deal needs to justify the time and effort.

   2. Special requests: Your product may not fully meet the specific needs or expectations of users inside the enterprise. This can be a make or break decision for a startup. If the required customization adds value to your general customer base, and you can recoup the one-time engineering costs in the deal, then maybe. Be careful, rocky road ahead.

   3. Friction: Enterprise users might be hesitant to adopt new solutions due to potential disruptions to their existing workflows.

   4. Can they afford your product? Startups like to discount to get a foot into a new account, what is sometimes called “Land and expand” with a loss leader. This is a bad idea. Your customer needs to afford your product, otherwise, they are not a customer.

How to fix this? Listen to your prospect carefully. Every deal should be profitable and drive you on your trajectory of rapid growth. Listen to your gut. If your gut says the customer is bad for you, walk away.

7. Stiffness: Failure to pivot or adapt in response to market feedback, competitive pressures, or changing customer needs can lead to stagnation and financial issues. What worked last year, may not work this year.
   
   How to fix this? Talk to your customers all the time. Visit them in the office. Buy them lunch.

8. Outsource everything but your core business. Don’t develop your own CRM or your own database. There is an AI-tool for anything today.
   How to fix this? Learn constantly and continuously improve the efficiency and quality of your operation.

9. Accounts receivables: It's not enough to price correctly, close the sale, implement the product and delight customers, you have to collect the money.

10. Do not lie.  Any form of lying, bending the truth, delaying the truth is a red flag for any business.  Tell the truth to your employees and investors in a timely fashion.

On a park bench in Venice CA

Mark and Bob are sitting on the park bench.

The tall bald man remained silent as they sat on the park bench. 

In front of them there was the green calm of the park. 

A man hungry for answers, must stock up on patience. 

A man in possession of analytical skills needs to listen. 

That is why Mark remained silent.

Mark, “Bob, how is Giganet doing? How is Alice?”

Mark listened carefully to Bob.

Bob, “Iris is now a wartime CEO. Cutting salaries and amping up sales. She’s solving the “Out of Cash" anti-pattern. I came away very confident from her talk with the team.

I ran into Alice outside the gym last week. We have a great vibe, but I really don’t know what to do”.

Mark, “Iris is a strong team leader, you have a great team and you are in good shape physically and mentally. War will become the new normal for you and the team.

Women are fantastic at mirroring their men. Their reflexes are built for emotional response first, and logic second. Which is the exact opposite of men.

I have a feeling that Alice is attracted to you. 

If she feels neglected, she will mirror that.

If she feels seen/cared for, she will mirror that.

If she feels judged, she will mirror that.

If she feels admired, she will mirror that.

If she feels unappreciated, she will mirror that

If she feels appreciated, she will mirror that.

Do the things that make you both happy, like music and movies. 

”.