5 ms·

"Any company with less than a year of cash in the bank is in the intensive care unit"

16 points by jkopelman 18y ago

sabat 18y ago
Blogga please. No one knows how the next year will pan out. Can we have a moratorium on blanket statements?
prakash 18y ago
Josh, what are your thoughts on this?
biohacker42 18y ago
What if they are cash flow positive. Perhaps not exactly profitable but close to it? Do they still need a one year reserve? What if they are profitable, what's a safe cushion then?
- nostrademons 18y ago
  If they are cash flow positive, then by definition they have more than a year of cash in the bank. Their burn rate is negative, so they'll never exhaust their cash supply. (They should have contingency plans for a sudden drop in revenue though - if you're barely cash flow positive and your customers drop out from under you, you won't be cash flow positive for long. That's one reason I left my last employer - they were profitable, but a major shakeout in the financial industry could easily leave them without customers. Seem to be doing okay so far, but I felt the risk was as great as leaving to start my own startup.)
  - mseebach 18y ago
    I'd define a year of cash in the bank as the ability to keep living, even if your inbound cash flow dries up. Obviously you can adjust the required amount by how certain the income is. Income from a non-terminateable contract with a solid business is "better" than 10.000 private users paying $5 by credit card every month. A private person who spend his entire salary every month (but no more) is cash flow positive, but only if he keeps his job.
    - nostrademons 18y ago
      "Income from a non-terminateable contract with a solid business is "better" than 10.000 private users paying $5 by credit card every month." From a financial security POV, I'd much prefer the 10,000 private users paying $5/month, because of the law of large numbers. http://en.wikipedia.org/wiki/Law_of_large_numbers http://en.wikipedia.org/wiki/Law_of_large_numbers Say you have two companies. One has 3 customers with non-terminable contracts, each of which pays you $1M/year. The other has 50,000 customers with at-will contracts, each of which pays $5/month. Revenue is the same in both cases, $3M/year. But if the first company loses 1 customer, their revenue is instantly down 33%. The second company would have to lose 17,333 customers to be in similarly dire straits. Unless they're a blatant pyramid scheme (like subprime mortgages or dot-coms), the chance of that is much less than the chance of the first occurrence. My perception may be colored by dealing with hedge funds, though. Hedge funds tend to "blow up" instead of reducing spending - you rarely have to worry about them stopping usage of your product, but you have to worry about them going out of business entirely. If it were 3 irrevocable contracts with GE, Wells Fargo, and Coca-Cola, I'd be much less worried.
      - Shamiq 18y ago
        If I can get a clarification, how well does the law of large numbers apply to a non-random sample? In other words, 10k paying users are self-selected into the service, which would include biases in measurements. Thus, depending on the variation of the user population, it could theretically be possile for small stimuli having large effect to a user base. If the users are similar, but are part of a niche, if that niche gets hit, the business could be wiped out.
        nostrademons 18y ago
        It doesn't. If your sample is non-random, it's quite possible for you to lose your 17,333 users in short order, if some external force acts upon them all. That's basically what happened with the subprime crisis - a lot of supposedly "independent" homeowners all defaulted at once, which played havoc on the computer models for valuing CDOs. They all had the unknown common factor that the loans were based on permanent home appreciation, and so couldn't be sustained on income alone. So when house prices started declining, bye-bye subprime loans. How secure this makes your customers depends on why they're choosing your service. It's very unlikely that 37signals or FogBugz would lose all their customers at once (unless a great new competitor sprung up), because they're all separate, independent businesses with their own reasons for purchasing the product. It's fairly likely that Twitter or FaceBook could lose all their customers, if there was some reason for an exodus to start, because most of their users are only on the service because their friends are.
abstractbill 18y ago
The panelists named several market segments poised for growth: Search engines powered by crowdsourcing... Really? Hasn't that been the "next big thing" for a few years now?
- ivankirigin 18y ago
  Indeed. I think they mean something more general, i.e. crowds of people filtering information. FriendFeed is like a crowdsourced content discovery engine, preempting the search for content.
- Retric 18y ago
  I thought that was basically how yahoo started.
- parenthesis 18y ago
  "Search engines powered by crowdsourcing" : http://www.techcrunch.com/2007/10/21/powerset-testing-results-at-mechanical-turk/ http://www.techcrunch.com/2007/10/21/powerset-testing-result...
nebula 18y ago
And the companies that do have the cash in the bank, cross your fingers and pray that your bank doesn't go bankrupt.
- Kaizyn 18y ago
  That's what FDIC insurance is for. You just probably need to have accounts in a number of different banks to ensure you won't lose your money.
- chaostheory 18y ago
  I think you should worry more about inflation since Uncle Sam is printing new greenbacks like there's no tomorrow
ojbyrne 18y ago
Jeff Clavier actually put on his blog that digg was built for $200. Since then I file pretty well everything he says as "not credible."

16 points by jkopelman 18y ago

sabat 18y ago

Blogga please. No one knows how the next year will pan out. Can we have a moratorium on blanket statements?

prakash 18y ago

Josh, what are your thoughts on this?

biohacker42 18y ago

What if they are cash flow positive. Perhaps not exactly profitable but close to it? Do they still need a one year reserve? What if they are profitable, what's a safe cushion then?

nostrademons 18y ago
If they are cash flow positive, then by definition they have more than a year of cash in the bank. Their burn rate is negative, so they'll never exhaust their cash supply. (They should have contingency plans for a sudden drop in revenue though - if you're barely cash flow positive and your customers drop out from under you, you won't be cash flow positive for long. That's one reason I left my last employer - they were profitable, but a major shakeout in the financial industry could easily leave them without customers. Seem to be doing okay so far, but I felt the risk was as great as leaving to start my own startup.)
- mseebach 18y ago
  I'd define a year of cash in the bank as the ability to keep living, even if your inbound cash flow dries up. Obviously you can adjust the required amount by how certain the income is. Income from a non-terminateable contract with a solid business is "better" than 10.000 private users paying $5 by credit card every month. A private person who spend his entire salary every month (but no more) is cash flow positive, but only if he keeps his job.
  - nostrademons 18y ago
    "Income from a non-terminateable contract with a solid business is "better" than 10.000 private users paying $5 by credit card every month." From a financial security POV, I'd much prefer the 10,000 private users paying $5/month, because of the law of large numbers. http://en.wikipedia.org/wiki/Law_of_large_numbers http://en.wikipedia.org/wiki/Law_of_large_numbers Say you have two companies. One has 3 customers with non-terminable contracts, each of which pays you $1M/year. The other has 50,000 customers with at-will contracts, each of which pays $5/month. Revenue is the same in both cases, $3M/year. But if the first company loses 1 customer, their revenue is instantly down 33%. The second company would have to lose 17,333 customers to be in similarly dire straits. Unless they're a blatant pyramid scheme (like subprime mortgages or dot-coms), the chance of that is much less than the chance of the first occurrence. My perception may be colored by dealing with hedge funds, though. Hedge funds tend to "blow up" instead of reducing spending - you rarely have to worry about them stopping usage of your product, but you have to worry about them going out of business entirely. If it were 3 irrevocable contracts with GE, Wells Fargo, and Coca-Cola, I'd be much less worried.
    - Shamiq 18y ago
      If I can get a clarification, how well does the law of large numbers apply to a non-random sample? In other words, 10k paying users are self-selected into the service, which would include biases in measurements. Thus, depending on the variation of the user population, it could theretically be possile for small stimuli having large effect to a user base. If the users are similar, but are part of a niche, if that niche gets hit, the business could be wiped out.
      - nostrademons 18y ago
        It doesn't. If your sample is non-random, it's quite possible for you to lose your 17,333 users in short order, if some external force acts upon them all. That's basically what happened with the subprime crisis - a lot of supposedly "independent" homeowners all defaulted at once, which played havoc on the computer models for valuing CDOs. They all had the unknown common factor that the loans were based on permanent home appreciation, and so couldn't be sustained on income alone. So when house prices started declining, bye-bye subprime loans. How secure this makes your customers depends on why they're choosing your service. It's very unlikely that 37signals or FogBugz would lose all their customers at once (unless a great new competitor sprung up), because they're all separate, independent businesses with their own reasons for purchasing the product. It's fairly likely that Twitter or FaceBook could lose all their customers, if there was some reason for an exodus to start, because most of their users are only on the service because their friends are.

abstractbill 18y ago

The panelists named several market segments poised for growth: Search engines powered by crowdsourcing... Really? Hasn't that been the "next big thing" for a few years now?

ivankirigin 18y ago
Indeed. I think they mean something more general, i.e. crowds of people filtering information. FriendFeed is like a crowdsourced content discovery engine, preempting the search for content.
Retric 18y ago
I thought that was basically how yahoo started.
parenthesis 18y ago
"Search engines powered by crowdsourcing" : http://www.techcrunch.com/2007/10/21/powerset-testing-results-at-mechanical-turk/ http://www.techcrunch.com/2007/10/21/powerset-testing-result...

nebula 18y ago

And the companies that do have the cash in the bank, cross your fingers and pray that your bank doesn't go bankrupt.

Kaizyn 18y ago
That's what FDIC insurance is for. You just probably need to have accounts in a number of different banks to ensure you won't lose your money.
chaostheory 18y ago
I think you should worry more about inflation since Uncle Sam is printing new greenbacks like there's no tomorrow

ojbyrne 18y ago

Jeff Clavier actually put on his blog that digg was built for $200. Since then I file pretty well everything he says as "not credible."