“How did you go bankrupt?” Ernest Hemingway was asked. “Slowly at first, then quickly.”
CB Insights analyzed hundreds of startup failures and found the same patterns recurring. The top five reasons companies say they were forced to close:
- No market need
- Ran out of cash
- Not the right team
- Overwhelming competition
- Pricing and cost issues
It all boils down to cash. Gross profit margins don’t cover overhead, and you run out of runway.
Most CEOs are focused on revenue, because revenue is easy to see, easy to announce, and feels like success. But revenue is vanity. A company can grow its top line while quietly bleeding out on its bottom line. EBITDA tells you whether the business model actually works. Cash tells you whether you survive the week.
The questions every CEO should be asking continuously, not just when times are hard:
- What are you doing to build liquidity?
- How would a 20% drop in sales affect you? 30%? Have you modeled it?
- What happens if a key supplier runs out of cash?
- Is your bank happy? Do they know your business well enough to give you room if you need it?
- Are you working in your business so much that you’re not doing your job as CEO?
The best time to think about these questions is when things are going well, when you have the luxury of thinking clearly, before urgency arrives.
The fish rots from the head. And the cash runs out the same way: slowly at first, then quickly.
These are the conversations we have in every Vistage room.
If this post hit home, the next step is to start a conversation.