The Strategic Role of Money

We likened the E’s job to that of a battlefield commander. The analogy holds for use of financial resources. You must carefully assess the battle and decide where to apply resources. Should you attack (spending on R&D, marketing, etc.) or should you defend (strengthening your infrastructure)? Should you hold back reserves to allow a counterattack in case things don’t go as well as planned? How much should you allocate to troop morale? How much should you allocate to your own morale?

For most Es, even fairly well established Es, financial resources are limited, and potential uses of those resources are vast. The only relevant advice is, “Use good judgment, and exercise appropriate restraint.” Some issues:

Be careful to allocate enough resources to marketing. It is a tragedy to develop a great concept and have no money left to market it.

Hold something in reserve, such as a back-up line of credit or contingency funds from your venture capitalists. A large number of businesses develop more slowly than anticipated but may still be very sound.

Be patient in withdrawing money. Because Es almost always sacrifice financially in addition to investing immense amounts of time and energy, it is tempting to grab some goodies as soon as they seem to be available. As we’ve discussed, growing businesses have an ongoing need for cash, so premature goodie-grabbing can slow growth.

Consciously invest in relationships, particularly employee and customer. Employee investments can be in working conditions, benefits and bonuses. Customer investments can include side fringes such as sports event tickets. In my experience, though, investment in the support system that will generate outstanding customer service has more lasting benefit.

Invest in the future. At almost any time, there should be some variation of R&D investment: ideas, products, programs, technologies, etc. that will impact how your business operates in the future. Today’s Internet is a fabulous example. As these words are being written, much is still unclear about the long-term role of the Internet, but it is certainly clear that the role will be important. To enter the arena now, even if on a minor basis with no goal beyond starting to climb the learning curve, is almost certainly a sound R&D investment.

Be the leader. You will receive immense pressure on the subject of funds use: salespeople, vendors, employees, fellow entrepreneurs, outside media, family, even friends. Listen well. Consider carefully. But remember there is no more crucial E decision than allocation of financial resources, and it is your job.