The Deadly Sin of BURNING Money
Startups fail for many, many reasons. This is just what happens.
Paul Graham famously observed that most die from suicide, not from homicide, meaning that it is not the competition that kills, but typically the founders themselves destroy the business.
Founders can break up or execute poorly. More often than not, founders can’t build the product that’s good enough for the customers to buy. If the founders are technical but not commercial, they may build a product but struggle to sell it.
Of all the types of self-inflicted startup death, burning money is the deadliest sin, in my opinion.
Burning money doesn’t typically happen at pre-seed or even seed, but can happen visibly post-Series A or even Series B.
So what happens?
To put it simply, founders spend a lot more money than the revenue they generate.
They hire more engineers and more salespeople than the revenues can sustain.
At first, they ramp up the SPEND to a few hundred K a month, then to $500K, and then sometimes to $1M or more.
But because the revenues are behind—and typically by a lot—the SPEND becomes the BURN.
And this ongoing big BURN, ahead of true product-market fit or ahead of repeatable sales motion, is what kills the business.
The truth is that you have to spend money to make money. To scale, you need more product, more sales—for sure.
But the art of a startup is to do it in a way that avoids massive burn.
And a lot of it also is the industry culture—we just raised a large round, we’ve got to go hire, put money into marketing, sales—we’ve got to spend the money.
Yes, but…
The issue is, money is the fuel, but a lot of early-stage startups don’t have enough unlocked to accelerate.
The second issue is building a repeatable sales machine is really hard and takes a lot of skill and a lot of time. And it is especially difficult when the product is not fully ready, which is commonly the case.
And thirdly, you don’t really know when you’d hit the wall on the growth or the market would turn.
You can have a bunch of great quarters and then one not such a great quarter. If you missed a quarter—maybe that happens—but if you miss 2 or 3 quarters, you need to be really careful with the spend.
Startup scaling is very complex, and spending money is an art.
What I have seen some founders do is basically ignore the art and just spend. These founders feel like it is their job to spend the money they raised. That’s a bad mistake.
When these founders realize they may run out of money, their instinct is to go and raise money. That’s an even worse mistake.
The job of a founder is to build a business that works, not to raise and spend money. Fundraising is the means—it is a necessary evil—but it is evil when you think about it all clearly.
The best founders never spend money on things that don’t matter; they never waste money. The best founders are exceptional stewards of capital. They are the true artists in building startups.
Every single time I watched founders raise too much capital and burn too much money quickly, the story ended badly. No matter how much you tell these founders to pause, to reflect, to not rush to spend, they don’t seem to listen. They spend in the name of growth, then realize they are running out of money and want to keep raising.
The best founder journeys I’ve been part of are the founders who are scrappy, a little stingy even. They don’t like to SPEND, and they hate to BURN. Those founders tend to find the unlocks first, then find repeatable sales motion, and then truly scale their entire business.
