Simple startup financials
Runway = Gap / Cash
[ MAIN IDEA ]
Occasionally I’ll run into a fellow unemployed indie dev who is actually focused on a single project. Once I find this out, I always ask this question excitedly:
”What’s your runway?”
So far, I’ve never gotten a straight answer. Instead, what follows is a ramble about how their wife is supporting them for “a little bit,” how they can sell some crypto, and how they can probably go back to their old job and moonlight if things flop.
I used to get so frustrated that I’d jump in --
“No, I mean how long until you run out of money??”
That only elicited even longer rambles, this time about their 401k rollover, their history as a consultant, their HSA, their father-in-law’s welding business, Airbnb, and property taxes.
I finally realized this:
Bootstrappers don’t know their runway.
“Runway is for those YC companies,” they think.
No, runway is for us way more than it is for them.
That’s because if you don’t know your runway, your financial decisions are driven by your emotions, which is bad.
So here’s how to figure out your runway as a bootstrapper.
Part I: Get your numbers
How much are you losing? Add up last month’s expenses (business + personal) so that you have one number.
How much is coming in? Add up last month’s income after taxes. One number.
What’s the gap?
Expenses - Income.How much do you have? Add up the cash and assets you’re willing to part with.
Part II: Divide
Cash (#4) ÷ Gap (#3). That’s how many months you have.
Multiply that by 30 if you want it in days.
Now you know your runway.
This’ll help you see how big of an impact your lifestyle has on your startup’s success. Let’s look at a few scenarios; you’ll see what I mean.
Founder A is confident, because he’s sittin’ on $100k cash from an IPO. But he spends $15k each month, and has nothing coming in.
100,000 / 15,000 = 6.6 Hotshot has less than 7 months of runway.
Founder B is young and broke, but frugal. He set aside $3,000 before getting laid off. He’s spending $1,500 and makes $800 from landscaping on the side. His gap is $700.
$3,000 / $700 = 4.3The hotshot founder with a hotshot lifestyle only has two months more runway than a broke kid with a landscaping job!
Founder C got things off the ground before quitting her job. She’s spending $4,000 but earning $3,000. Her gap is $1,000. She’s got $20,000 stashed away.
$20,000 / $1,000 = 2020 months of runway! 600 days to figure out how to earn an extra $1,000 and become ramen profitable. Founder C has 1/5 of the cash of Founder A, but over 3X the runway.
It’s wild to see all the gibberish in your head reduced to one number, isn’t it?
Clarity is king.
Although it’s initially scary, I find that tracking this number is empowering.
It reminds you that you always have two levers: make more money, or spend less money. Hotshot Founder A could triple his runway by making $5k recurring revenue more next month. Or he could make $0 and triple his runway by downsizing to a smaller apartment.
If you don’t like your runway, you can cut expenses, pick up consulting work, charge more, or pivot. These are all rational responses to a financial reality.
It also keeps your emotions in check. Bumping into a high school friend who got a Big 4 Job and just bought their second Audi doesn’t spike your FOMO anymore; you already confronted the reality of your decisions in a spreadsheet that morning.
So whether you’re sitting on a mountain of cash or scavenging for change, please calculate your runway, if only to make our conversation more enjoyable for me when we bump into each other.
[ INSPO ]
