What Happens When You Get Addicted to OPM (other peoples money)

Howdy!?In today’s blog post, I want to talk about what happens when you get addicted to OPM (other people’s money)—A.K.A. venture capital funding.

Relying too heavily on what I like to call OPM is like getting hooked on an unsustainable high. It’s tempting to scale quickly, hire more, and take big risks, but when you have heavy net subsidy spending and are subsidizing internal operations heavily, it is extremely difficult to cut back.

Let me put things into perspective:?About a year and a half ago, the VC funding market hit a hard pause. Getting a Series A round meant having 5 million in ARR. That used to be the exit point and now it’s the entry point! This shift?tells you how particular VCs are about where they are deploying capital.?Even if you plan to raise money, being bootstrapped for as long as possible is very attractive to most VCs because they know you’ve already developed highly capital-efficient habits.

What’s happening now?is?it has become increasingly more difficult to get funding and/or a follow up round. Startups that relied heavily on funding rounds are facing tough choices, including layoffs and trimming down operations to try and sustain the company.

Everyone?talks about their “path to profitability” or their “path to breakeven,” but without cash generation, it’s easy to find yourself stuck at step one, waiting for more capital that might not?come.

One of the pitfalls of being addicted to OPM is that companies can start making questionable financial decisions.?When founders have “free” money to spend, they are more likely to?overpay for expenses, including outside firms and extra labor. Accessible capital can blind founders to frugality and efficiency—because when it’s someone else’s money, you don’t feel the real pinch.

On the flip side, being a?bootstrapped entrepreneur?forces you to be incredibly capital-efficient?and?learn a great deal about making thoughtful, sustainable choices because your survival depends on it. Having a bootstrapped mindset helps founders better understand what it takes to build a profitable business.

Important Question to Ask Yourself this Week:

If you had only your own money to invest in your business or idea, what would you do differently to reach profitability, and how might this change your approach to decision-making and growth?