Why you won't run out of money

I've heard many entrepreneurs make a decision based on reasoning that goes something like this: "If I do that, I'll grow too fast, and I'll run out of money to pay for hosting."

It's an easy trap to fall into, because you're probably convinced everybody is dying to use your product (if you're not, why are you making it?). For me, it was when we were sitting on the closed side of our beta, and had no idea how we were going to scale. Our decision was whether to continue with an invitation only-beta, or open public. We also thought that an invitation-only beta could encourage some kind of exclusivity or competition to gain access to our app, which could fuel growth (we were wrong, more on that in a future post).

It ends up that you probably won't grow that fast, and if you do, you'll be damn lucky. There's basically two opposite scenarios: One, you'll grow really, really fast and you'll need more servers and have a hosting bill you can't pay (sounds bad, right?). Two, you're not growing that fast and you'll be perfectly fine with the infrastructure you have right now. Now just picture that you can make a decision that gives either scenario A or B, depending on what you choose -- or even just makes one or the other more likely.

In the first case, you are growing really quickly. That's great! Your idea has been (more or less) validated, because you're solving a need for a bunch of people. But your servers are on fire. There's good news, though: call any investor in the valley and tell them "I'm growing so fast and I need $15,000 to pay for servers and hosting" and you'll have convertible note paperwork signed by the end of the week. (If you don't know any investors and are growing so fast you're running out of money, email me). That 15k buys some new servers and gets you a couple months to go out and raise a round.
End result: You are now the proud (co-)owner of a business well on its way to success. Your website survived and you raised a couple million dollars two months later at a terrific valuation.

In the second case, your growth is slow. You probably run out of money because you're not making enough to pay rent (you don't have enough people using your site!) and you're having a hard time convincing investors to give you money.
End result: Your website isn't growing fast, and your life sucks.

I should qualify this scenario just a little bit: This generally applies to most startups, especially those where there is a decent chance of generating enough revenue to cover your costs at some point. (It's probably a bad sign if that's not the case)

It doesn't sound realistic but it tends to be true: money will kind of appear when you're on the right track. In the short-term, there's also probably a few friends or family members that will loan you a couple grand. The much larger risk: not growing as fast as you can, or at all.

In our case, we were growing by 5-10 users a day in an invitation-only beta. PG convinced us to open it up, and 3 days later, we were covered by TechCrunch and had over 4000 users sign up in a couple days.

To sum it up: since growth is key to your success, make decisions that favor growth over some short-term problem.

If you haven't read it already, there's a great story about how HotOrNot dealt with growing extremely rapidly in Founders At Work.