Is debt your friend or enemy?

As an entrepreneur, is debt a “badge of honour” or a “daily cashflow nightmare”?!

For some entrepreneurs living in debt is a demonstration of success. It is all about the monthly burn rate and your ability to manage that and over time reduce it and deliver break even, before moving into the sunny uplands of positive cash flow. This is all about speed and the importance of being able to invest in product development, market testing and customer acquisition. It’s a philosophy of get on with it and build market share or fail fast. Of course it is all predicated on being funded!

For other entrepreneurs, it is about living within your means – something that is more typically associated with one’s own personal finances. This may mean that you go slower, but it does force the entrepreneur and the company to be disciplined and get quickly into profitability or at least break even.

Clearly there are two different strategies here.

  1. On the one hand build a business organically; either to retain control of the equity or because the entrepreneur wants to take their time to develop their proposition or simply because they believe that they are too early for the market and need to do it organically for a while.
  2. On the other, decide that the opportunity is big enough and interesting enough for investors to invest early and for the company to get on with it. Here the entrepreneur is deliberately deciding that they would prefer a small bit of a big pie, rather than a bigger bit of a smaller pie.
What is your approach to debt?

Both strategies are equally valid and there is no single right way. It depends on the need, the solution, the market and the position of the entrepreneur.

So analyse the opportunity and your position within it and then choose one route or the other. Do not fail to make a decision.

Once you have selected your strategy, review it periodically.

Leave a Reply