The Fatal Pinch

Paul Graham argues that startups in the "fatal pinch," where they have months of cash left but are losing money with flat or weak revenue, should not count on raising more funding and should act quickly to cut costs or increase revenue. He says investors set much higher standards for companies that have already raised money, and that a struggling company is now read as a failure. His suggested responses include shutting down if failure is certain, firing people when overhiring is the problem, and pursuing "consultingish" custom work to earn revenue quickly. He notes that the situation is self-reinforcing, since overconfidence about fundraising makes founders slow to reach profitability.