“Turning on revenue” frames it as a binary thing. You’re either making money or you’re not. It completely disregards the most important variable in finance: Time.

With the tiniest trickle of revenue you can extend your runway infinitely. That means you never have to raise another cent and you even have money to fund your growth. Let’s take an example:

Say you’re a consumer web business. You have some growth and some traction. You close an angel round for $400k in Month 1. In month 2 you start spending it and your burn rate is $25k for salaries, office and hosting. It takes you 4 months to get the product into shape and launch.

In your first month of launch you make a meagre $500 bucks. And lets say you suck at marketing and your revenue increases by $1000 per month so that a year after you launch your product (17 months after getting funded) you’re making $12,500 per month in revenue.

Even two years after getting funded you’re still only making $19,500 which is far from breaking even.

But what this does it it slows your burn rate enough and buys you enough time so that you never run out of money. That means you can keep paying yourself a full salary and growing your business and you never run out of cash. In month 29 your bank balance drops down to $12,500, but then it starts increasing again because in Month 30 you break even.

If you didn’t generate any revenue in the first 18 months you run out of money in month 17.

You might argue this approach stifles growth. So be more aggressive, increase your burn rate to $200k and raise $3 Million. The same logic applies. Early cash-flow that is far from break-even can extend your runway to infinity (and beyond).

This matters for founders more than anyone else because it means you can raise a single round and never have to give away any of your equity ever again.

The sheet below shows the two scenarios – with and without revenue. [I've reoriented the flows vertically for readability]

So we’ve had to keep growing without going out and buying a Google-size web cluster. A lot of the wins we’ve had have been simply using every spare drop of capacity we can find. I’ve noticed a pattern during the last 6 months. It goes something like this:

Kerry (My wife, our CFO, and keeper of the graphs): Server 12 is hitting 10. [Meaning it has a load average of 10 on an 8 CPU machine which is 125% load]

Me: OK Dell has this great special on these new R410 servers that are about twice as fast as the previous generation.

Kerry: What about the other machines in the cluster?

Me: They’re already at 80%.

Kerry: OK what else do we have?

Me: Well the crawlers are maxed, the mail server’s maxed, the proxy’s maxed out, the load balancer is maxed….

Kerry: What about 25 and 26? They’re sitting at 2.

Me: Well we’d have to [technical and managerial speak explaining how complicated it's going to be to implement]

Kerry: OK so lets do that.

Me: [More bullcrap this time rolling out the big guns desperately trying to get money for new toys]

Kerry: …[waits it out]

Me: OK so lets do that.

If you’re a CFO approving purchase decisions in your company, take it from me: Geeks and CEO’s alike love buying new stuff. I assure you there isn’t a web cluster or database cluster on this planet that you can’t squeeze a little more capacity out of without breaking things. So before you take the [technical and managerial bullcrap from your geeks and CEO] at face value, sit down with your team and have them explain all the data to you and go through all your resources with a fine tooth comb. Then, if you absolutely have to, spend some money.

And if you don’t have a CFO, nominate someone immediately!! It doesn’t matter how small you are, someone had better be the keeper of the cash-flow plan or you’re going to run out of money and wonder why.

Incidentally, this is the load decrease on one of the busiest servers in our cluster when we brought online some ‘found’ capacity earlier today.

Posted on Hacker News.

Fox News, like clockwork, has given former asshole president Bush credit for the recovery. (Skip to 3:00 in the video) “He took the bold moves and look where we are today..”.

John Authers in the Finanial Times is almost embarrassed on Thursday as he delivers the news of what a DOW 10K means in real, opportunity cost terms. If you invested in the DOW in 1999:

• Relative to emerging markets you’ve lost 80% of your money.
• Relative to gold you’ve lost 75% of your money.
• And even in dollar terms corrected for inflation (using the CPI) you’ve lost around 23% of your money.

Bruce talks about behavioural finance and the irrationality of investors, the often ignored mathematical realities of the market, the brutality and danger of short selling (all short sales are treated as short term capital gains), the power and value of franchise and much more!

I love his constant reminder of what value actually means: First look at the balance sheet, then current earnings ignoring growth.

He does a great fast analysis of why even value investors got caught with Fannie and Freddie because they misanalysed the balance sheet.