That’s an acronym for the Association of Certified Fraud Examiners an organization that identifies three main factors behind workplace fraud, all of which seem to be in plentiful supply for the people managing VC backed startups. Who knew?
So if you start to feel complacent about your own company and think that somehow it’s immune from fraud, fashion, fantasy, flimflam, fakery and failure… just remember, so probably did the employees of Zenefits, Lending Club, WrkRiot, Skully, ScoreBig, Rothenberg Ventures, Faraday Future, Hyperloop One, MiniScribe, Enron, WorldCom, Hampton Creek, the Honest Company and perhaps the greatest failure of the last several years… Theranos.
Your Company may be Able to Disrupt an Industry but it cannot Overcome the Laws of Nature
Do you really believe that money isn’t finite? That VCs would continue to throw more and more of it your way, year after year at higher and higher valuations and not really expect a decent return in a reasonable amount of time? Do you think that every company with a Silicon Valley connection would be wrapped in a mantel of adoration and afforded the same patience as Amazon and Uber? And have you ever questioned that the mantra of “growth now, profits later” might have an expiration date?
All those VCs are now a lot older and wiser and want to get paid in shorter time periods. Plus, there are tons of new kids on the block who also want some of that lucre and their concepts may even be shinier than yours.
And most important, whereas you may not be aware of this trend, you can bet the farm every VC is and that according to a 2016 Innosight report, as published in Fortune Magazine, about half of the S&P 500 will be replaced over the next ten years.
Every man and VC for himself
Here’s the ugly truth. If your company spends more money than it earns; if it constantly needs ever larger sums of funding to sustain itself; if the date for projected profitability keeps moving further into the future; if it doesn’t have at least 24 to 36 month’s burn rate on hand; if top management is overspending on unnecessary items to promote it’s image instead of improving its product; and if the company is spending more time on fundraising than sales and marketing… your company just might be one small problem away from sustainability.
So who will be the Last Man Standing?
Do you really have to ask? Let me give you a clue… it’s definitely not going to be you. Did you really think all that money came without strings? That it wouldn’t have to be paid back? That it didn’t have preferential returns? Or wouldn’t potentially dilute the shares you were issued until yours were virtually worthless? And, most important, do you think that any of those guys care?
It’s Hard to Defy the Laws of Nature or Bend too far the Rules of Economics and Human Nature
If any of the above sounds like a description of your company, it’s time for management and employees to get their collective corporate heads out of the clouds and come down to earth. Everyone needs to begin living in the real world and figure out every way to cut expenses and make a profit. It’s real hard to go out of business when you’re making money but real tempting to do something terribly stupid when you’re losing money, have few options to get additional funding and your competitors are smelling blood in the water… and that goes double for your VCs and other creditors.