Carol Leaman knows her stuff when it comes to startups.
She has personally led three tech companies to multi-million dollar sales and acquisitions. Currently she is the CEO of Axonify, a disruptor in the corporate learning space and innovator behind the world’s first “Employee Knowledge Platform,” which aims to increase employee knowledge and performance.
She recently agreed to share some tips with Techvibes on an issue that runs rampant in the startup world: cash burnout. As important as the subject is, Leaman says it’s not what she tends to get questioned about.
“Almost every time I meet with somebody I get asked about raising capital,” says Leaman, “I always say to founders—first of all, don’t think it’s a given.”
Leaman says in the current financial climate most startups can’t raise more than angel capital from friends and family, and it’s important to be realistic about that. But what should a startup do if it can’t raise capital right away?
“You need to think about going and getting customers as quickly as possible. Self-funding, even with something small like a customer pilot or anything, that’s the way to go.”
This serves the dual purpose of bringing in cash and also testing your product or service on the market at an early stage. Being able to gauge the real demand for your product or service is essential for any startup, says Leaman.
“There is a lot of empirical evidence that the number one reason companies run out of cash is a single-minded focus on building a product that the market doesn’t actually want.”
But let’s say you’ve got a market-tested product that’s performing well—like Axonify. Are there still things to be watchful for when it comes to cash burn?
Leaman laughs at the suggestion.
“I’m always nervous. It never goes away. Certainly in the first three or four years of the business especially, because I’m always trying to ride that thin line between being prudent with the money but also spending enough to push our growth.”
Leaman says she’s seen startups starve themselves with a single-minded focus on profit rather than re-investing in the company. She does recommend, however, that startups be cautious when it comes to scaling, as a startup’s single largest expense is always payroll.
The CEO estimates that the average cost per employee on annualized basis is between $75,000-$100,000. If you have 10 people on your team, that cost is already approaching nearly $1M per year.
Apart from being cautious with scaling, Leaman suggests saving wherever you can— “Don’t go for the big expensive office, don’t spend a lot on travel”—and keeping a weekly cash-in, cash-out spreadsheet. She also notes that if you’re above the 20-person mark at your company, you should get a designated financial team member to keep track of everything.
Something that Leaman believes makes a difference at Axonify is their dedication to transparency, especially when it comes to financials.
“Every single person here needs to feel ownership of the financial outcomes,” says Leaman, adding that it leads employees to making better financial decisions for the company.
Leaman says that through her mentorship of young entrepreneurs she has seen a lot of founders who have little to no financial wherewithal, but is heartened by a recent trend towards financial literacy.
“Entrepreneurs are paying more attention to having to hunker down and extend their cash runways as long as possible” she says, “They’re understanding that angels and VCs are few and far between and inundated. They have to figure it out on their own, and I think more are realizing that.”