Default Alive or Default Dead?
by Paul Graham · read the original
One question every funded founder must be able to answer: on current expenses and current growth, do you reach profitability before the money runs out? Half of founders can't answer it, and the ones who can't are the ones who overhire their way into the fatal pinch.
- 1
The Question
Default alive: current growth and current expenses get you to profitability on existing cash. Know your answer at all times, because half of founders don't.
- 2
Why Founders Don't Ask
Early on the question is meaningless, so founders never build the habit. Start asking too early: premature worry is cheap, late discovery is fatal.
- 3
The Fatal Pinch
The fatal pinch = default dead + slow growth + no time to fix it. It kills because it's invisible until too late, which is exactly why you run the check early.
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Overhiring Is the Biggest Killer
Hiring too fast is the biggest killer of funded startups. Headcount is a consequence of growth, not a cause. If growth is weak, fix the product, don't staff up.
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Your Investors' Incentives Are Not Yours
Kill-or-cure spending is optimal for a VC portfolio and dangerous for your one company. Take burn advice with the portfolio effect priced back in.
- 6
You Can't Rely on the Fundraising Market
Future fundraising is a hope, not a plan. The more you depend on it, the less likely it becomes. Say the true sentence: 'we're default dead and counting on rescue.'
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The Airbnb-Caliber Bar
The bar for counting on investor rescue is Airbnb-level performance, and even Airbnb stayed lean, waiting four months to make hire number one.