The other day I had coffee with an entrepreneur whom we’ll call Shai. Shai was entertaining me with good, and not-so-good, stories about his experiences learning the ropes in the new media business in the U.K.
One pearl of wisdom stuck out. Shai recalled a period at his last venture where he had grown panicked about his debt-level. You’ve probably been there: already in hock for a few grand more than he was comfortable with; not yet cash flow positive; yet Shai’s company was at a critical inflection, where he needed to ramp things fast to get to cash flow positive.
Shai figured his choices were few. He could: sell equity to raise money; take on a partner and change his b-model entirely (which he didn’t want to do because he “still believed” in it); sell out; or, shut it down. He sought out a mentor to help him choose.
And this is when his mentor tells him:
“Don’t be stupid. Borrow more. At $20,000 in debt, if your business model doesn’t work, you are in trouble. At $2,000,000, if your business doesn’t work, the bank is in trouble.”