This post is part of the My Zawya Story series.

Negative cash flows are a standard feature of any start up and most SMEs when they go through a negative economic cycle. Anyone who has been through that knows well the sheer terror of wondering what he will tell his team on pay day when he does not have the funds to pay their salaries, or what he will tell suppliers, or how he can explain to his shareholders that he needs more funding. It is a sobering experience.

Negative cash flows, even when budgeted for, create unique challenges relative to mature companies. First and foremost is measuring success or progress. Business books and the internet are filled with warnings that profit should not be used as a measure of success. These people don’t know what they’re talking about. True, there are multiple measures of success but if they do not translate to profit then there is a serious problem.

For example in Zawya’s early days we looked at revenue as one measure. No doubt this is an important measure and in a more mature company a jump in revenue can usually be celebrated. In terms of a fast growing start up the picture is never so clear. Is the increase driven by recent decisions or is instead momentum from earlier decisions? Is the increase due to capital expenditure or is it being driven by a reversible expansion in operating expenses? Is it sustainable revenue based on long term visitor behaviour or is it a temporary increase due to curious visitors who have no interest in returning?

By diligently questioning all data and then questioning our interpretations of the data we slowly built up verifiable metrics that allowed us to better understand the state of the business. How many page views per single visit before the viewer asked for a trial subscription? How many visits per day for a trial user to convert to a paid user? What is the cost of sourcing per user? What is the profit margin per information source? Logic pointed to dozens of metrics that should make sense, and would make an MBA happy. Only a handful of those metrics could be validated by the data to have any real value in commercial decision making and lead to a return that would make an investor happy.

The financially focused investor is often portrayed as cynical and missing the big picture. The product focused entrepreneur is often portrayed as delusional and misunderstanding reality. The answer is not a middle ground, but instead applying the right attitude to the appropriate role. Optimism in business development, pessimism in planning.

Main series page: My Zawya Story.
Previous article in series: Deciding the Business Model.
Next article in series: Positive Cash Flow Challenges.