Cash Rules Everything Around Me

My dad has something in common with the Wu-Tang Clan. Like the Wu-Tang Clan, he know that cashed ruled the world and still does. He ran his own company for 25 years. I'm not talking a technology company, though. He ran a fabrication company during the 80's-90's. Metal spinning and such. He's from the old school of business of street smarts and deal making, having built a very successful company despite barely graduating high school. I learned a lot about business from him. One lesson was especially memorable.

Growing up my dad carried a lot of cash around with him at all times. Since this was pre-wide spread credit card usage, it wasn't totally unusual. However, the amounts he wound carry around seemed strange. He was always selling his metal scraps, so him having some cash on some days wasn't unusual. However, I thought it was unusual for him to have 10-30k in 100's on him, split between 2-3 money clips, at all times. One day I decided to ask him about it:

Me: Dad, why do you carry around so much cash?
Dad: In case I need to pay for something.
Me: Why not just use a credit card?

At this point, he stopped what he was doing, turned to me, looked me in the eye and said:

Dad: Because, son, cash solves a lot of problems credit doesn't.

Cash solves a lot of problems credit doesn't.

That lesson has stuck with me throughout the years. It wasn't until I got older, more independent, that it started to really sink in how important cash was.

From a personal perspective, cash is liberating. Having it means not having to take out debt, which means not being put in a position where you have to make some possibly awful choices. It's when you forget that, start equating the two and find yourself in a mountain of debt. That debt will calcify you and make you unable to do the things you want. Instead, you're doing things you have to You end up working harder, longer and doing stuff you hate just to get back above water. Of course, most people never make it.

From a business perspective, cash is even more important. When you own a company, cash is king. When you have debt as a company, it's not always as bad as personal debt. However, when you're running out of cash as a company, well, the ship be sinking. Without cash, you're DOA. You find yourself stuck, doing things you don't want to. Only this time, you're effecting a whole lot of other people, possibly including those that depend on and trusted you. That's not good. As the head of company, your eye needs to always be on the goal: profit.

A lot of entrepreneurs don't want to hear that. They focus on shooting out the of gate, as quickly as possible. The thinking being that they haven't a moment to spare. They throw out words like 'traction', 'exposure' and 'buzz.' Those are all fine things, but they need to be framed around one thing: making money ( or 'monetization' as the kids are calling it these days). Without it, you're just blindly thrashing around.

Two downsides with going at it blindly:

  • You swim around for revenue models, furiously moving from one possible avenue to the next. That is, until you're left with that one deal that can make or break your company. At that point, you're in a rough spot.  If things go sour, you should reflect on what caused you to need that single deal so much.
  • You jump right into looking at external funding before you, your company and your product are ready.  Your company has an extremely low valuation. You sell away a significant amount of control and end up as just another employee with a few more shares.  If you're a true entrepreneur, this is like being part of the walking dead.

Both are bad positions to end up in. Remember: C.R.E.A.M. The Wu-Tang Clan knew it. My dad knew it. There's no reason you shouldn't know it too.