Having too much money can be a curse, not a blessing

Trust me, I love having well capitalized companies.  However, having too much money can be a curse, not a blessing.  More often than not, I see management lose financial discipline and avoid making hard decisions when capital is abundant and not scarce.  To many executives, money does solve all problems.  And yes, having money allows an entrepreneur to do many things with his business like hire more talent, scale the back-end infrastructure, and ramp up sales and marketing.  On the other hand, when an entrepreneur has too much money, the tendency is to throw more money to fix a problem.  Sales are not ramping up quickly enough so let’s hire more sales people.  Marketing is not generating enough leads so let’s spend more money on lead generation.  Engineering keeps missing its product release date so let’s hire more engineers.  And what happens is that more money gets poured in and that only exacerbates the problem as management never really spends the time to dig deep to understand what the underlying issue is and to fix it at the source rather than layer on more resources.  In other words, an entrepreneur only hastens his downward spiral by spending more money on an inefficient business strategy. 

On the flip side, I have seen many an entrepreneur create successful businesses who some could argue were slightly cash-starved.  I am not arguing for entrepreneurs to starve their companies of the resources they need, but what I am suggesting is that having too much money can make one lose their creativity in terms of allocating scarce resources to grow a business.  This is especially quite important during the early stages of company development.  An entrepreneur needs to experiment with various ways to reach his target market, generate revenue, and develop product.  An entrepreneur also needs to stay focused, disciplined, and make hard decisions in terms of where to focus company resources.  Too much capital can kill this need.  Throwing too much money at the wrong strategy or too many different areas only adds fuel to the fire.  While money can really help an entrepreneur scale a business, having too much can be a curse.

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