This is an influencer post by Jason Calacanis, Entrepreneur & Angel Investor.
I’ve been listening to a fabulous audiobook called “The Martian,” in which an astronaut is left behind on Mars with a limited amount of food. It’s riveting. *
The stranded botanist/engineer has to “make it work with what he’s got.”
This of course got me thinking, what if your startup was left behind? What if the eight months of runway you have was all you were going to have — would you survive?
[ * You can get “The Martian” free at audible.com/twist. Audible used to sponsor my podcast and they seem to have left this free audiobook promotion up. ]
In boom times most founders don’t think like this because, to continue the analogy, there is a never ending stream of resupply ships in our startup galaxy. Very few people are looking at “months until I run out” — let alone “days until out.”
MOST FOUNDERS DON’T KNOW WHEN THEY RUN OUT
I’ve made it a mission of force that the founders in which I invest know — off the top of their heads — how many months of runway they have. It’s so important that I ask them to make it the first line of their monthly investor updates (I wrote a blog post on why investor updates are so important).
“How many months of runway do you have?” I asked one awesome founder.
“I’m not sure …” he replied.
“How much are you spending and making each month?” I asked.
“Umm … well, we don’t charge for our product yet since we’re going for growth, so I know one number perfectly: zero revenue” he replied.
“OK, so your spend is your burn — what are you spending?” I asked.
“Well, I think we spent like $60k or $80k last month … but we had the legal issue, so maybe $100k? But wait, we had to put down $50k for our office rental …” he blabbered.
“Stop.” I paused, before continuing, “It’s your job to know. Go back to your team, pull up every month’s P&L and review it with everyone. Every week get your balance from your bank accounts sent to you and know what you got!”
He nodded. He got it together and now he knows.
HOW I USE MY RUNWAY TO MAKE DECISIONS
At any time I can tell how much money, revenue, spend, and burn the two companies I run have. This lets me know our runway, which I define in months. By knowing the months I can develop a plan. By executing that plan, I can avoid dying.
Inside.com has nine months (until the end of the year) of runway and LAUNCH is now profitable. If revenues at LAUNCH dropped by 50% we would have 24 months of runway — that’s a great way to run a business.
Inside.com has been in the market for 18 months and LAUNCH for four years — so it makes sense that one is in ‘figure out the product’ and one is in ‘scale the business’ mode.
There are basically three “acts” at a startup:
- Figure out the product
- Figure out the business
- Figure out how to scale the business
That’s really it.
Elon figured out he could build an electric car with the Roadster, he figured out it could be a business with the Model S, and he will figure out how to scale the business with the Model 3 (the $35,000 car for everyone).
Some companies have the business built in like Uber, so they just have to figure out the product and the revenue (their % of each fair) takes care of the rest. SaaS products are also typically designed with #2 “built in.”
That’s why enterprise software companies are harder to kill!
So, at Inside.com we are moving from stage one to stage two. We know folks love mobile news and so I’m figuring out, “How can we make $50,000 a month in revenue?” If we figure this out we would extend our runway by another three months. If we figure out how to make $100,000 a month we obviously extend our runway by another four or five months.
The great news about figuring out #2 (your business), is that it attracts investors who can extend your runway! For every $25,000 in monthly revenue you land, you can expect 20x that in investment!
So, my strategy with LAUNCH is, “How do we double the size of This Week in Startups, LAUNCH Ticker and LAUNCH Festival?” At Inside.com we’re looking for a partner to pay to do a vertical app, podcast, and conference with us.
Our first stab at this will be to partner with a drone maker on our Inside Drones App, an Inside Drones podcast, and a live event. If that works, maybe we can get a partner for Inside Space, Inside Cannabis, and Inside Video Games. If that sounds like what I did with Engadget, Autoblog, and Joystiq, but on mobile, well, you’re right!
EXTENDING YOUR DAYS ON MARS
There are three main ways in which “the martian” (in the novel) can live longer:
- consume fewer calories
- make more calories
- get rescued quicker
Your startup has the same model:
- you can spend less money
- you can make more money
- rescue: raise money or sell your startup
Take time to focus on A, B, and C on a regular basis. With regard to C, my “hack” is to do yearly meetings with partners to “catch up” and “fill them in.” I did this over the past two months and all of a sudden we had some M&A interest in Inside.com from major tech and media companies.
So make a plan and think about — but don’t obsess over — these three things.
CAN YOU GTOWYG?
Given this, I suggest to all teams that they make a plan to “get there on what you got!”
Your GTOWYG plan basically says, “If the market for funding ends would this business make it until the investors come back?”
- What positions can we cut? Can we move some folks to consultants? Can we outsource anything?
- What partnerships can we form? Is there someone we can do a work-for-hire project with?
- How low can our burn be while not destroying the business? What low-calorie diet can we go on?
There are a million ways to ask these questions, and having a founder discussion (or founder & lead investor) is always a good use of an hour or two.
Note: I’m not saying we’re in a bubble and it’s going to pop, but I am saying things are frothy and eventually markets correct to some degree. Have a plan for when they do.
Disclaimer: This is an Influencer post. The statements, opinions and data contained in these publications are solely those of the individual authors and contributors and not of knowstartup and the editor(s). This article was initially published here