Sometimes the startup community uses jargon, words that mean something to "insiders" that might confuse anyone without context.
This month’s word is: ramen. To a lay person, ramen is a steaming bowl of rich broth, thick chewy noodles, juicy slices of chicken or pork, topped with seaweed and diced vegetables.
In the startup world, ramen has a different meaning. Ramen is a dried brick of instant noodles with a flavour sachet. Ramen is a 70c pack of salt and carbs. Ramen means dinner, because for some startup founders, ramen is all they can afford to eat.
I don’t say this to romanticise daily meals of seasoning powder and anti-caking agent. I’d like to see every startup founder getting three healthy meals a day while they build their venture.
Dr Kirsty Fairbairn, performance dietitian and chief executive of the startup Fuel My Potential, says "under-eating and poor nutrition leads to less energy, impaired cognitive performance, and increased risk of burnout".
"That’s true of everyone, not just elite athletes."
So, if it’s so bad, why is cheap ramen such a part of startup culture? In part, it’s the mythology of the starving creator. The story arc that begins with being down-but-not-out, persisting through passion and sheer force of will, before finally breaking through to success and fortune. This myth can make founders think that being broke and hungry is the right/only way to do things.
It’s also because in the early stages of a building a startup, you have to pay for things before you start earning any revenue, and the pool of money you are drawing from is limited. These initial costs are often paid from personal savings, leaving the founder weighing their own needs with those of the business.
This brings me to the other word of the month: cashflow. Cashflow refers to the money coming into and going out of an account. We are focused here on cash, or money in the bank, as opposed to "revenue" which might mean that someone has promised to put money in your account at some point in the future. Because you can’t use promises ("accounts receivable") to fill your tank or pay your suppliers. Fun fact: if you want to support a startup, make sure you pay their bills promptly!
This is the biggest gap we see in the business side of starting a new venture. It’s easy to tell the story of how fast-growing and profitable a startup will be a few years down the track; it’s harder to face the reality of paying the bills before some revenue is reliably coming into the business. And almost every first budget overlooks the line item: pay myself.
A financial model or a budget helps you visualise the next one to five years. But a cashflow forecast helps you know if you will be able to pay for the things you need, at the time that you need to pay for them.
Question 1: How much cash will you need to spend before your business becomes self-sustaining? Costs might include the raw materials to make your product or deliver your service, and sneaky things like tech subscriptions, bank fees, or marketing materials.
Question 2: Where will that cash come from? If you’re putting in money from your own "day job" pay cheques, make sure the amount you need for the business each month matches up with what you can afford to contribute.
Question 3: Can you personally survive on whatever you have left over (or are paying yourself)? You’ll need to cover things like rent or mortgage, utilities, Christmas and birthday presents, and meals that contain actual proteins and nutrients.
Properly understanding your cashflow can help you grow your business — and avoid eating ramen every day.
Contact Startup Dunedin for a simple finance worksheet, or go deep with resources from business.govt.nz and NZTE.
One approach to building a startup is to quit your job and put your savings towards supporting yourself and your business until money starts pouring in. If you do this, know that you will regularly think "but I could just do that myself", even if it means burning time on learning a new set of skills. You will value your cash more than your time, because it seems more finite.
Another approach is to earn money as an employee, contractor or gigworker, and build your venture on the side. You’ll have less time, but more cash to pay for tools, assistance and expertise (and salads). As your venture grows, you can let it "pull you in", demanding more of your attention. That’s a good signal to re-balance your time and outside earnings.
A recent trend in our conversations with startups is that some are running low on cash for the business and in their personal bank accounts. These founders went "all-in" on their startup, and are now considering returning to work part-time, picking up contracts, or doing consulting work. But this isn’t a bad thing or a failure at all — it might be the perfect move for the stage of your business (and life).
Laura Bradley, chief executive of the gigwork platform Skillzea, found herself in this position a few months ago.
"My co-founder has recently returned to work part-time and we are so much happier for it, although it felt like a failure at the time. The real win though is that we could stop eating noodles!"
Whatever stage you’re at with your venture, it’s never too early (or late) to get support.
- Pete Lead is a startup coach at Startup Dunedin. Startup Dunedin offers free resources, connections and chats for Dunedin-based entrepreneurs. Get in touch with the team at https://www.startupdunedin.nz/meet
