I was just catching up on the Chirp conference care of GigaOm when I stopped dead at this sentence,
“With more than 100,000 applications created on its platform to date, it’s frankly amazing that Twitter hadn’t formalized its road map and addressed competition with developers before … [t]hough with $160 million in the bank you’d think the company could have been a little quicker and savvier.“
I don’t want to comment about Twitter. I want to talk about money. Money isn’t a magic wand. For as much as it frees your business from some debilitating constraints, it can also be extremely dangerous, which I’m sure Ev knows well. With startups, and frankly anything in life, if you spend money too fast, you usually end up wasting a lot of money and making bad decisions (just look at U.S. spending in its conflicts overseas).
I don’t begrudge Twitter trying to grow carefully. Frankly, the last company I was involved in would have benefited from raising less money. It would have hired slower and better, taken on fewer parallel projects, and most likely had more credibility and flexibility with investors when it came time to pivot (although it is hard to say — they were unusual early stage investors, which is a whole other lesson unto itself). To be clear, there were bigger problems at work than amount of capital raised, but I do think the money exacerbated things by letting the company take bigger, and more, bets which ultimately did not pan out.
Once you get passed a certain level, more money cannot significantly speed up the amount of time it takes to find good hires, learn about your market, or develop key strategies. Nor can you purchase product-market-fit.
My dream is to have lots of money in the bank, and spend it very carefully, finding that elusive balance between over-cautious and over-zealous. There are exceptions to caution: if you discover a really great and scalable customer acquisition method, you can pour money into that channel as long as returns are solid (either profitable or delivering on key growth or market-share metrics).
For as obvious as all this is, I am always amazed at how often you hear comments that equate money in the bank with a fast solution to a startup’s challenges.