Money gets a bad rap in some circles. You will often hear quotes like “money can’t buy happiness” (or money can’t buy you love, if you are a Beatles fan) and “money is the root of all evil” (an incorrect quotation of a bible verse) to describe how money isn’t important, or even worse, is evil.
While I agree that money isn’t everything in life, when it comes to entrepreneurship, it is extremely important. Money keeps your business alive and running. It pays your employees, suppliers, the IRS and most importantly, yourself.
In Bill Murphy Jr.’s excellent book, The Intelligent Entrepreneur, he highlights the careers of three entrepreneurs who were graduates of the esteemed Harvard Business School. One of those entrepreneurs, Marla Malcom initially went to work for a man who owned several companies, Jonathan Ledecky.
One of the biggest lessons learned from Marla’s time with Ledecky is the idea of DROOM, which stands for don’t run out of money. As the owner of several different companies, Ledecky was constantly scheming ways to bring more cash into them. He would take some companies public, borrow money for some companies and find simple ways to increase revenue in some companies. But having been burned by running out of cash before, he knew that one way or another, he had to keep money in his companies to keep them running.
Beg, Borrow and Steal
Money is the life blood of your business. It is your job to do whatever it takes to keep money in it. Whether that means bringing on additional investors, borrowing money from private lenders or large banks or finding ways to increase your revenue, you need to keep the cash coming in to keep your business running.
Sometimes, as in the case of taking on investors or loans, keeping money in your business will cost you money. That’s OK. If paying for cash is the only way to keep your business running, assuming you are still confident in the business model, the equity or interest you give up is a small price to pay.
Starting vs. Staying in Business
I believe that the old rule of “it takes money to make money” is no longer true. The idea that you have to have significant funds to start a business is largely a myth. With the internet and all the free marketing that comes with it, most businesses can now be started with very little money up front.
But once that business is up and running, money becomes extremely important. Often, as your revenues rise, your expenses rise with it. Soon you have obligations to pay employees or contractors. You may have a few loans taken out and some suppliers or vendors who need to be paid. Because of this, the business that cost almost no money to start, now requires a lot of money to keep going.
As entrepreneurs, we must always remember the number one rule; don’t run out of money.