A while back, Eric Newcomer explored the venture-backed Bench collapse, where the CEO was fired, too much debt was taken on, and the company was sold in a fire sale. They were burning $1.5m monthly after a $30m VC raise, and growth had slowed, a common challenge for startups. Many startups experience a “Year of Hell” with dramatic growth slowdowns, and only the best founders often find a way back.
The dilemma when growth slows is whether to spend more or less. Without innovation and team upgrades, growth may continue to decline. It’s tempting to spend more to maintain momentum, but increasing spending during slowing growth rarely works.
Conversely, reducing expenses when growth slows is challenging, too. Many SaaS companies cut marketing and paused hiring, worsening the slowdown.
Founders tend to be either Savers or Spenders. Be honest about which you are, and scale back when times are tough. If you usually have a high burn rate, resist spending more. If you’re frugal, cutting more may not help.
Each founder has different tendencies. In tough times, monitor these tendencies as they can lead you astray. Maintain a firm burn rate budget and adhere to it.