Your #1 Job: Don't Run Out Of Runway

As a startup founder / CEO, you have many jobs. The most important of them:

Make sure your startup doesn’t run out of runway.

As long as your cash balance is > $0, you still have a shot at making things work. Without $ in the bank, there’s no startup.

Here are the top 20 reasons startups fail according to CB insights. With runway left in the bank, you can overcome most if not all of them.

In today’s fundraising market, every founder gets the same advice:

Raise more, spend less, increase revenue, extend runway.

Much easier said than done.

In his most recent post in Coding VC, my friend and fellow investor Leo Polovets from Susa did a great job at outlining how to make every $ last longer along his Argo framework as following:

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A💰cquire more cash.

A great way to avoid running out of money is to get more money in the door. This includes more obvious ones like proactive fundraising and venture debt.

Less obvious ways include taking advantage of startup tax credits with services like MainStreet or Neo.tax (they are free money and surprisingly generous) or to put your money into a safe, high yield account for 4+% yield.

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R✂️educe costs and push them back.

Reducing costs isn’t just about headcount reductions. The lower your costs and the later you can pay them, the better for your cash position. Try to also e.g.:

• Maximizing vendor discounts (your investors can help you get them basically everywhere)
• Less obvious tactics such as only issuing virtual corporate cards vs physical ones (up to $20K savings per employee / year)

I also like Leo’s framing around how to think about net burn:

A good rule of thumb is to set a cap on net burn, like $100k/mo. If you want to spend more than $100k/mo, you’ll have to make up the difference with revenue. One perk of this approach is that runway calculations become easy: if you raised $3m and you are capping net burn at $100k/mo, then you have at least 30 months of runway.

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G🌱row revenue and pull it forward.

The more you sell and the faster the money lands in your bank account, the better that is for your cash position. This includes:

• Getting your customers to pay upfront (offer better terms, especially for multi-year payments) - according to pricing guru Patrick Campbell, converting e.g. monthlies to annual has 200-800% higher LTV (!!!)
• Using revenue financing tools such as Pipe
• Experiment with pricing such as taking counterintuitive steps like cutting discounts in half as discounts over 20% have double the churn rates

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O⏱️ptimize operations.

A great way to not run out of cash is to get more leverage out of each dollar through improved efficiency. There are many ways to do this and great, consistent execution compounds as outlined in my recent post Execution Trumps Strategy.

For a more detailed write-up of how to think about cash management for your startup, I highly recommend giving Leo’s post a read.

He ends his article with the following closing thought that very resonates:

Finally, while the advice above will help you manage your startup’s money better, it’s important to remember that “you can't cut your way to success.” You can extend your runway and be more efficient, but ultimately you have to create something that customers want and will pay for. If stretching your capital further helps with that, then great. But if you feel like extending your runway is just postponing an inevitable shutdown, then stop trying to extend your runway.

Most of us get 40-50 years in a career, if we’re lucky, and every year you spend on something that’s not going to work out has a huge opportunity cost. So be frugal, experiment, and optimize your cash flows, but don’t forget that the ultimate goal is to build a high impact, lasting business. If you’re not progressing toward that goal then it’s okay to change direction.

🙏 Appreciate you letting me share this Leo.

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