Plug is more important than cash, mainly because money is just a commodity for high return (and high risk) endeavors.
In fact, from a historical perspective, it is reasonable to state that money has been always a commodity for bold entrepreneurs engaged with great endeavors. Not always controlled by same stakeholders, but still a commodity. Centuries ago, for example, the Jewish-French Rothschild family was engaged in financing wars between European royal families. Spanish rulers and private investors financed expeditions to America. British emperors and private shareholders financed East Indian Company expansion in Asia. Chinese empire financed Zheng He global expeditions. And so on.
Naturally, money flows better with strong institutional framework and rules of law. That partially explains why First Industrial Revolution happened in Britain just few decades after Glorious Revolution. That also clearly explains why private capital currently flows more to USA in comparison to Russia or China, forcing government-centric investments both among Russian and Chinese endeavors. Money is liquid, after all.
Nowadays, all the hype around lSilicon Valley attracts billions of dollars through venture capital firms and private equity companies. Suddenly, piles of cash have become more abundant in that region, fostering hundreds of start-ups and also creating so-called unicorns. Still, capital is just one aspect of this unique ecosystem. Having this in perspective can help us to properly position cash as a tool instead of a final goal.
During my entrepreneurial career as an advisor to large companies C-Suite and investor, I learned a lot about two golden rules in corporate financial management: there is no free lunch and cash is the king. The first one reminds us that high returns are necessarily associated with high risks. The second shows us that revenue is vanity, profit is sanity, but only cash provides real outlook about any enterprise future perspectives.
Having said that, it is also true that connections play a critical role in any company. It seems fair to state that money attracts money. Nevertheless, great opportunities speak for themselves, and great opportunities rarely appear out of the blue. They are fostered among powerful networks and relationships.
In the past, between 1950s and 1990s, mass production techniques and access to retail channels were critical for scale. Today, platforms play a central role in digital economy. Being unplugged means staying irrelevant. Tones of cash are useless outside network effects provided by successful platforms that combine both access to customers with almost zero marginal cost and robust data analytics modeling customer experience journeys.
Not surprisingly, corporate venture capital (CVC) initiatives from large companies offer much more than cash to promising start-ups, connecting them into their core technologies, systems, products and channels. Following the same rationale, leading accelerator clubs offer management skills and access to investors, digital giants invest in plug&play possibilities and VC firms seek different options to consolidate platforms. When cash is just a commodity, smart money means unique connections and preferred access.
As a concluding remark, as a general rule of thumb, despite the fact that some famous unicorns remained unplugged, I truly believe that Plug beats Cash during start-up phase, mainly because platform plug improves management capabilities, fosters innovation through collaboration, leverages operational excellence, accelerates sales and attracts better talents. Cash comes right after as a natural outcome of these powerful drivers.
Daniel Motta is the Founder and CEO of BMI Blue Management Institute, a leading niche consulting firm. He is a global thought leader focused on culture, strategy and leadership. He has a PhD in Economics, MSc in Financial Economics and BA in Economics. He is also an OPMer from Harvard Business School. He is the Managing Director of USA-based VC company White Fox Capital and the Senior Tupinambá Maverick of bossa&etc. He was a co-founder of Brazilian Society of Finance. He currently serves NGO UNIBES as Strategic Planning Principal. He is the author of the best selling books Essential Leadership and book Anthesis. He also has three articles published by Harvard Business Review. He is a Board Member of MASP.