Over the last year, I’ve watched a number of founders I’m close to go from “what traction do I need to show to raise my next round” to “how can I get to breakeven?” The time it’s taken to make this mental shift has varied, usually based on how much cash they had in the bank. The less cash, the quicker the realization.

I’m a fan of this mindset change. Focusing on reducing cash burn can change a culture in a positive way. The team realizes that resources are scarce and becomes more efficient in using them. People stop throwing money at problems and start coming up with creative, out-of-the-box solutions and ideas. All of this increases the probability that the company will create a solution that customers want and will pay for continually.

One of my closest friends put it best: “I’ve done my best work when running out of money was a real possibility.”

This week I caught up with a lawyer friend. We touch base regularly to catch up. I tell him what I’m working on and thinking about (personally and professionally), and he does the same.

During our recent chat, I shared some early ideas that weren’t fully fleshed out. My expectation was that he’d ask a few questions and we’d move on to what was going on in his world. To my surprise, he quickly caught on to what I was thinking and agreed with part of my hypothesis. In fact, not only did he get it, he pointed me to a little-known database that could provide valuable information to help me execute this idea. He walked me through how to navigate the database and understand the information returned as results.

This meeting was a reminder to share your ideas with people. Doesn’t matter if they’re rough or half-baked; share them anyway. You never know what someone knows or who someone knows that could help you. There’s way more to gain from sharing than not sharing your ideas.

I caught up with a founder who updated me on his progress. His company recently launched its product and is now looking for customers. He has less than a year of runway left and understands that raising additional venture capital funds isn’t a sure bet.

During our conversation, he shared that he’s hyper-focused on getting to breakeven. He’s trying to convince customers to pay for the solution, which has him hyper-focused on creating real value for them that he can be paid for. He isn’t spending time with customers who can’t or won’t pay. He isn’t building nice-to-have features, only must-haves. He’s now open to introductions to different industries and customers that have the problem he’s solving (he used to be open only to a narrow industry and customer profile).

This founder has always been good about listening to customers and running a good customer discovery process, but it’s on steroids now. His focus on creating value, being paid for that value, and reaching breakeven has elevated his company’s customer discovery process to another level. The entire team is laser focused on iterating the solution quickly to turn it into something customers will happily pay for.

When capital was abundant, founders could always punt. They could raise another round to extend their runway if they didn’t find product–market fit. Now, with that option no longer readily available, the possibility of running out of runway and shutting down is very real. It has more founders focused on getting paying customers to extend their runway.

The current fundraising environment is tough for many founders, but an unexpected benefit of it could be a heightened focus on customer discovery. That would be a good thing because it would lead to more founders solving problems that people care about and are willing to pay for.

A Bloomberg article today reported that 1.6% of job seekers relocated to take a new job in the first quarter of 2023. According to the article, that’s “the lowest level on record.”

That statistic really jumped out at me. That means people are now choosing where they live based on factors other than their work. I’m sure other things, such as low unemployment making competition for talent fierce and high interest rates making buying a new home more expensive and less appealing, are playing into this. But it still says a lot about the shift in employee psychology.

I don’t think this change is limited to employees. I suspect founder psychology has also changed. Founders are choosing where to build companies based on personal factors like quality of life—not proximity to investors or traditional tech talent pools.

If this dispersion of founders continues, I’m curious to see how seed-stage venture capital funds adjust their sourcing strategies.

I was chatting with a family member about something I want to accomplish. They started asking questions about how I was going to do it. “I don’t know,” I repeatedly said. They were puzzled. They couldn’t understand why I was okay not knowing how I was going to accomplish my goal. This intrigued me, so I began asking them questions. I eventually learned that they associate a clear path to a goal with a high likelihood of success. Said differently, if you know what steps to take ahead of time, you’re likely to be successful (if you put in the work).

No clear path means uncertainty, which scares many people. That’s understandable. In my experience, an unclear path can be scary but isn’t insurmountable. If you can figure things out as you go, you drastically improve your probability of success.

I first realized I could figure things out when I was a kid. I tried to convince my parents to let me do some hairbrained side hustle. They reluctantly agreed, to my surprise. That’s when I realized I had to figure out a lot of stuff to make the side hustle work. I had no idea what to do or how to do it. Eventually, I figured it out by talking to people and doing research. There were some bumps along the way. But to my parents’ and my surprise, it worked out. I made some money and learned how to figure things out.

The ability to figure things out is key to dealing with uncertainty. If it isn’t a skill you were born with, it can be learned. All you need to do is practice by . . . trying to figure something out.

An entrepreneur friend keeps close tabs on how public software businesses with recurring revenue are valued. He feels confident that in a high-interest-rate environment, free cash flow will play a bigger role in the valuation of these and other types of public companies than it has in the last decade.

It occurred to me that most people likely don’t know what free cash flow means. Free cash flow is a measure of how much cash a company generates (or consumes) that’s available for management to use at their discretion. For example, they may use it to pay dividends or for share buybacks. It’s important to note that free cash flow is different from net income (net profit)—mainly because of accounting rules. For example, some things that add to or subtract from net income don’t involve the company spending or receiving cash (e.g., depreciation). Companies can lack profitability but still generate free cash, and vice versa.

Here’s the formula: free cash flow = operating cash flow – capital expenditures

Operating cash flow can be found on the statement of cash flows. I won’t get into the details, but it’s basically how much cash company operations generate. It’s different than capital cash generated or spent from investing and financing activities. If a company sells widgets, it measures how much cash it consumed or generated just from selling widgets, not from investing the company’s cash or raising debt or equity.

Capital expenditures can also be found on the statement of cash flows. This is usually a measure of how much capital was spent on assets that will be depreciated over a period. Think buildings or pieces of machinery. Buying assets isn’t an operating expense, but it does reduce cash available for management to use and thus reduces free cash flow.

Free cash flow is a good concept for entrepreneurs to understand.

A few weeks ago, I wrote about Apple having launched a new savings account product. The product was interesting for a few reasons:

• It offered a competitive 4.15% APY when it launched, which is higher than many other institutions’ accounts.
• The iPhone gives Apple a huge distribution advantage in a changing banking landscape.
• The Silicon Valley Bank (SVB) failure and First Republic Bank failure put uninsured deposits top of mind for depositors. People are moving deposits to mitigate this risk, which is shifting the banking landscape. Banks must now compete for deposits and reward savers.
• Given these facts, Apple’s announcement seems well timed. It may have decided to not let a good crisis go to waste.

I’ve been curious how successful this product would be. This week, I read a Forbes article that answered that question. According to the article, Apple’s new savings accounts saw inflows of almost $1 billion in deposits in just four days. That’s astonishing. If it’s accurate, it signals, to me, that there’s an huge amount of pent-up demand because of an unmet need. Talk about product–market fit and perfect timing. I can’t wait to see how Apple’s savings accounts do over time and what their next banking move will be.

iBank coming soon?

I founder friend I’ve known for years reminded me that bootstrapping my company forced me to apply discipline in building my company differently than other founders who were focused on growth (and raising capital from investors). I’ve thought about this a bit, and he’s right.

The margin of error was much smaller for my company. If we ran out of cash, that was it. Game over. Paranoia forced me to dive into learning the numbers early in the company’s life cycle and focus on adding to our cash (i.e., turning a profit).

This type of management style wasn’t always in favor when profitability was less of a priority than growth. After my conversation with my buddy, I’m wondering if that will change. Will founders with a more disciplined approach to running and growing companies be more in demand?

I was asked about my plans for retirement recently. Here’s how Merriam-Webster defines “retired”:

Withdrawn from one’s position or occupation : having concluded one’s working or professional career.

A few years ago, I had the opportunity to take a few months off after rarely taking time off for the last decade. I gave myself permission to disconnect. I wasn’t thinking about anything that resembled work. I wasn’t thinking about how to solve problems; I wasn’t tinkering with new ideas. I wasn’t checking email (regularly). I wasn’t talking business with anyone. I focused on doing things I couldn’t do while I was leading a company, like spending a few weeks with a family member who was recovering from a life-threatening medical condition. I completely withdrew from work.

I enjoyed the time off and being able to reconnect with people. It was a much-needed respite after years of grinding. But I also felt like I was at a standstill. As a founder, I was constantly having to rise to the occasion to overcome the latest hurdle. That kept me in perpetual learning and growth mode. I didn’t always enjoy the things I had to work on or learn as a founder, but I enjoyed the personal growth. My time off felt odd because I wasn’t being challenged or growing—not quickly at least. Mental stimulation was missing.

I did learn from the experience how powerful controlling your own time can be. Other people have affected my calendar since I was a child. If it wasn’t a school schedule, it was a work schedule or a business issue or something or someone else materially impacting how I spent my time. But during my time off, my calendar was under my sole control. I wasn’t working on stuff I didn’t want to work on. I wasn’t spending time with people I didn’t want to spend time with. I was in complete control of my time. It was quite liberating.

At the end of my down period, I concluded that my goal isn’t to retire. I’ll never want to retire (in the traditional sense). I’ll never want to walk away from the professional things I enjoy and the mental stimulation they bring. Instead, I want the freedom to work on the things I enjoy and that are mentally stimulating.

My goal isn’t to retire—it’s to control my time in perpetuity. I want the freedom to work on things and with people that bring me joy (so it doesn’t feel like work). If it doesn’t feel like work, I’ll end up doing more of it. I’ll be as engaged and busy as ever!

My retirement plan is to never retire.

I caught up with an entrepreneur friend who’s building a new company—his third start-up. His second start-up has been a massive success. One of the keys to that home run was his first company, which many people don’t know about. He doesn’t run it anymore, but he still owns it.

Company number one is of modest size, has a small team, and doesn’t grow much. But it’s highly profitable. Over more than a decade, he’s been able to use the cash from this predictably profitable company to fund his personal income needs. This took the financial pressure off, giving him the freedom to work on his second start-up without needing to take a salary in the early days. And he could delay raising venture capital until after the product was built and had material customer revenue.

He essentially built a company to generate cash flow to support his family and then built a high-growth company that compounded his family’s wealth. Now, he spends his time doing things he enjoys, like solving the problem his third company is addressing.