A few years ago, I met a founder with only two months of runway left. In two months, his company would shut down because he didn’t have any cash to support it. He wanted to discuss whether he should start fundraising for his second round. That’s some scary shit. We should have had that talk when he had 6 months of runway left.Here are the two scenarios you should never run into:
- You don’t know how much runway you have left (i.e., you could run out of money in 1 month, 3 months or 9 months. Your startup death day is unclear)
- You know your runway, have less than 6 months of cash and you’re not executing a plan to fix the situation.
When you have less than 6 months of cash in the bank, what do you do? The options are pretty simple:
- Get profitable (increase revenue, decrease burn or do both)
- Raise more money
- Get acquired
- Get blindsided when you run out of money because you didn’t have enough time to execute on 1, 2, or 3.
Running out of money should never happen because you didn’t leave yourself enough time to execute. When that happens to companies, it’s unnecessary and tragic. Who knows what would have happened if you had given yourself enough time?
The sense of startup self-preservation is an amazing thing. When runway is low, founders often execute better and focus more. But, the only way to trigger that self-preservation is to know well in advance that the end is coming and to put a plan in motion. That’s why it’s always important to track your runway and think of 6 months as a red line.
Don't let yourself be blindsided. And, if you have less than 6 months of runway, no plan and want to meet - please don’t mention it until I’m at least one beer in.