Cash Flow Break Even When?

Angel to Exit is in its 4th operating year, and I am glad to say we are now, officially, for the moment, cash flow break even (or better). Of course in a sense we have been cash flow break even since day 1 - if you ignore all the investment of time and effort and you ignore all the costs being covered by the founder.

If we did proper accounting for all of the time and effort of all of the people involved in most startups, we would find pretty much the same thing. You put in time and effort and you feel (and are) underpaid. But you keep going and going till you either give up or succeed.

And what is success?

There are many successes in businesses. Depending on the business, you should be measuring different things of course. I think the way to feel good about yourself (which is likely required to keep going for years) are metrics based on what you can achieve - the little things. Here are the ones I used for A2E that kept me going:

I don't want to go into future paths for A2E here, but I do want to comment that this is about what I have come to expect for time frames for companies like A2E.

Companies like what?

Different companies are different. Companies that have complex sales processes like A2E and involve multi-year recurring revenue contracts take time to build up, involve lots of tuning to get things working for different audiences, and so forth. A retail toy store will be very different.

And yet, we seem to find that most businesses take years to get working right.

I hear stories of startups that went from nothing to millions in days, weeks, months. But I have never seen one. Producing millions of dollars of value just seems to take time. I don't claim this is inevitable. I just observe that it is true.

Yet another story

I know lots of folks who are in businesses of various sorts. They build them over years, spending lots of their time, identifying challenges, starting with a few customers, adapting to the real needs and operational issues, fixing things, improving things, and on and on. And after 3-4 years, they have viable businesses that can start to pay them. They grow it over the next few years and it becomes a cash cow, eventually hiring people to do most of the work and basically supervising the running of the business without day-to-day operational responsibility. It scales, runs, generates enough money to live well and possibly retire, and they look for what to do next.

On the other hand, I run into lots of folks who have good ideas, develop technologies, and are given great opportunities to grow, but many of them fail because they just don't get it. Whatever it is...

Earlier today I was speaking to a business person who spent the last 6 years building up a business, and it looks like in the next 3-4 years he will be wealthy as a result. He has a large market involving renters, and with his hundreds of thousands of clients, thought it might be a good idea to sell hydroponic gardening systems to those renters. Now I know several startups in this arena that I have talked to over the last several years. Several of them have small hydroponic gardening system solutions That are good for apartments, are scalable businesses, if they know how to run them - which they don't and don't want help to do.

So this entrepreneur who has and continues to build his business over years seeks out and meets these hydroponic startups, and offers them a path to a large market for apartment dwellers taking a percentage of revenue for his marketplace, and they (all) say "no". I'm sure they all have their reasons, but I am just as sure that we could negotiate a successful path forward to bring these or similar products to the large market and make more money for all, allowing the smaller companies to leverage the larger audience to grow faster.

Why does it take 5 years?

So for these small companies, they lost an opportunity to grow quickly. And they will... Again and again. Because it takes time to recognize, if you ever do, the reasons you didn't get there sooner.

And they are not the only ones. I have foolishly turned down great opportunities because of my lack of understanding of the implications, my short sightedness, my personality flaws, and plenty of other reasons.

I do not claim that you or I should be perfect. In fact, I am reasonably certain that neither you nor I will ever be. And that's why it takes 5 years. Or more.

It takes 5 years because we don't know how to do everything that needs to be done yet. We have to learn. Perhaps good advisors can reduce the learning curve and help prevent mistakes, but unless you are doing the same thing someone else did or the same thing you just did, there will be things you don't know and that take time to figure out.

In summary

It takes time. There are good reasons for this. Expect it.

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