The Danger of Being Default Alive

Paul Graham poured the ice bucket over Silicon Valley when he brought up the discussion of becoming cash flow positive. Not that he used those mundane words, he called it being “Default Alive.” But there are drawbacks to being cash flow positive.

“We just signed BigCo!”, he said with smile, which I answered with a high-five. And in his next breath he explained why the roadmap is too aggressive.

The reason it is so much easier to raise a seed round than an A-round is that you are full of potential and no delays, baggage, or disappointments. A newly founded company is a clean slate — an investor projects their own dreams and wishes. You sweat dreams and ooze of passion. That is what they invest in.

The second you are balancing on the tightrope of cash flow you can suddenly lose something. It is down from here. Loss aversion kicks in. A lot of startups that are making enough money to pay their bills want to lower their risk, with adverse consequences for their ambition.

“But what happened to ‘make a dent in the universe’?”, I said in dismay. “I totally get that, but there is too much at stake now” she said.

As an investor, I love founders that can balance this — being less dependent on external financing but still staying ambitious is ideal. If your startup does become financially independent, your aggressive plan becomes like a new startup on top of the one you run. A new venture.

External investors might drive you to never make money and become totally dependent on them. Making money is a good thing, as long as it doesn’t hollow drive.

But remember that the stability and stasis you have created is threatened by future competition. Right now when you have speed, you can innovate and push. It is borderline impossible to get a defending team with a comfortable lifestyle to attack and run towards the darkness again. If you are profitable, focus on new metrics.

Create value and monetize that, but run while you can. If you sit down, you will become sedentary. As a wise man once said, “Stay hungry, stay foolish.”