By Derek Lidow
Money can’t buy happiness, but if you’re an entrepreneur it can buy you the next best thing: time.
The students to whom I teach entrepreneurship and the entrepreneurs who seek my advice often ask, “How much time will I need to get a new business off the ground?” I tell them that what they’re really asking is “How long will it take to become consistently profitable?” The answer lies in understanding “entrepreneurial time.”
Entrepreneurial time is not about duration—six months, a year, ten years—but about speed: how fast you get to profitability. Some businesses can get there quickly, but most businesses need considerable time to develop before they become profitable.
In either case, money can help you speed up or slow down the passing of entrepreneurial time, depending on the circumstances of your business. Here are four of the chief ways: two that accelerate entrepreneurial time and two that slow it down.
When money speeds up time
Money can accelerate time to critical cash-flow milestones by eliminating constraints. Money enables you to get more people, more publicity, more space, more locations, and more of whatever is available, taking you where you need to be, sooner. More money is therefore a competitive advantage in businesses that need to grow faster than the competition in order to survive.
But money, of course, comes with costs, and the decision to spend a great deal of it all at once can be fateful. In the Silicon Valley model, the initial aim is not profitability but rapid growth, fueled by money from investors who are strangers. Growth is enabled by the investment they attract and attracting that investment depends on the company’s growth potential. So, the entrepreneur shoots for the moon using great amounts of other people’s money.
For most entrepreneurs—what I call “bedrock entrepreneurs,” who painstakingly and methodically attempt to build a business from scratch over a period of years—the decision to spend money to move faster requires careful calculation. Successful bedrock entrepreneurs start small, seek profitability early on, and plow their profits back into the business, accelerating time in small increments. They grow big only after they have demonstrated that they can consistently make money.
Money can accelerate skills acquisition. As businesses grow, additional skills are required to operate them. These may range from elementary business skills like bookkeeping and inventory management to more sophisticated skills like marketing, to highly specialized skills in finance or technology.
In my experience, I’ve often found that fledging entrepreneurs, wary of spending money, try to master too many skills themselves or expect members of their team to master them. But rather than taking the time required to develop a new skill, you can hire highly skilled people you need or engage them as consultants.
In 1999 I created iSuppli, an electronics market intelligence company. At the time I did not have the experience or the skills to understand the dynamics of the capacitator market—a market that was inhibiting the growth of the entire electronics market at the time. To make up for my deficiencies so that we could give our clients visibility into the supply and demand balance of this critical component, I hired two experienced capacitor business executives. iSuppli immediately gained credibility, attracting clients who needed accurate information to understand how capacitor supply could affect their business. And in 2001 we correctly forecasted a capacitor over-supply, sending shock waves through the industry.
Nonetheless, sometimes a required skill or contact can be so specialized that no amount of money can buy it. In the early days of a new technology, few people may understand it or know how to work with it. For example, it is estimated that there are only about 10,000 people in the world who have the skill to take on complex artificial intelligence (AI) work—and they’re being gobbled up at stratospheric salaries by the tech behemoths, as well as manufacturers around the globe. Your startup may not need a skill as rarefied as AI, but you may find that your team lacks a critical skill and no one with that skill wants to partner or work with you. In that case, you will have to devise a plan for someone to learn it.
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When money slows down time
Money can buy time to reach profitability. Sometimes you want to slow down entrepreneurial time to give you more actual time to achieve profitability. This can be especially important in a business that requires a lot of set up or involves other unforecastable events, like getting permits, satisfying regulatory requirements, training personnel, or getting new technologies to work reliably.
And whether you’re offering a never-before-seen product or service, or simply improving on an existing product or service, you need time to validate your idea with actual customers. In the process, you may find that you have to alter the idea and the value proposition, sometimes radically, in order to make people happy enough to give you money in return for your offering. That can take time. And it can take even more time when you cling stubbornly to your original idea.
Once you have some committed customers, you then have to figure out how to deliver the product or service reliably—and profitably—to them while finding new customers. That requires more time to put in place the requisite operating and financial structures, pivot from project-mode, where you focus on developing the product or service, to process-mode, requiring repetitive tasks, regularity, and other unglamorous elements of a fully-fledged business.
Money can help you live through otherwise fatal mistakes. It takes time to undo serious mistakes, which are almost inevitable when you’re building a business. Some of those mistakes can be fatal unless you have the money to buy the time to undo them. Five common mistakes are particularly life-threatening for startups:
1. Poor hiring, especially in small companies, where every hire is crucially important
2. Poor firing, where employees are retained though their skills do not fit the evolving business
3. Releasing mediocre products or services resulting from leading teams by consensus, instead of coaching and inspiring them to meet high expectations
4. Failing to make the transition from project-mode to process-mode
5. Lacking project leadership skills resulting in failing to align and control the great number of activities that must be synchronized for the efficient and responsible operation of a fast-growing enterprise
How much time do you need?
For all entrepreneurs, time and money are inextricably linked. But in different business situations and at different stages in the growth of your business those links are far from uniform. At any point, you need to understand what kind of time you need and how much money you need to buy it. Otherwise, you’re likely to wind up with the worst of both worlds—losing money and wasting time.
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