3 of the Hardest Finance Decisions Startup CEOs Must Make
September 3, 2015 by admin
When you’re the CEO of a startup, you go through many problems that don’t have one right answer. Also, many of these problems don’t have any perfect solutions. In these scenarios, you must be able to find the best possible solution and move forward. While this may seem straightforward, it’s one of the hardest things to do correctly as the CEO.
An area where this applies early on in a startup is when it comes to how to spend your company’s money. Often, the CEO must think differently than the rest of the team of how funds are allocated. No one is going to obsess about how much is left in the bank like the CEO will, and no one will appear more like Mr. Scrooge.
Below, I’ll share three tough financial decisions that every CEO must make. Early on in a startup’s life, these decisions hold a lot of weight but also are hard to get right.
1. How much to pay your teammates
When you first start your company, you most likely will not be able to pay your early employees competitive salaries. In fact, you may have to pay them in free housing, booze, or whatever else you can find besides money. At some point, you must find the sweet spot of how much you feel is fair to pay someone and how much you can afford. While giving out shares can help, in most cases it’s not enough to get people to go all in. At the least, people want to break even and live in a comfortable environment.
Seems fair enough, until your startup starts running out of money or faces roadblocks. When this happens, it’s natural to try and be more conservative to keep the company going. At the same time, you’ll have team members who after a while will want more money. Give in and you may not have the funding you need to solve the problems your business is going through. Don’t give in, and your teammates may revolt and leave.
The easiest way to solve this problem early on is to take the lowest salary of anyone in your company. As the CEO, you’re most likely having the greatest impact on your business. So if you can live on a lower salary and still have that kind of impact it has a big affect on the rest of the team.
2. How short your willing to make your runway
This is the hardest financial decision you’ll face early on in your company. This is where CEOs must decide if they are either going to be conservative or risk taking. When you raise a round of funding, a major decision you’ll need to make is how long you’re going to make the money last.
As you company hits roadblocks or starts to hit stride, your teammates will ask you to up the burn rate to solve the problem or to grow. But as the CEO, you must know when to say no and be safe or risk it and make the jump.
3. How much you’re going to pay yourself
Every situation is different. If you have a family of 5 and everyone else on the team is single, your expenses are going to be much different. With that said, I strongly advise that as the CEO you only take as much money as you need to get by. And if at all possible, take the lowest. Try to avoid any special treatment or benefits that your team tries to give you early on. Perks will lead to more problems than the benefits are worth.
I know this hard to do because it seems counterintuitive. You’re the top dog, so you deserve the most and the best. There is no problem in having this mentality, but just know it comes with consequences. It makes it easier for your team to separate from you, and it makes it easier for your title to go to your head.
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