‘Runway’ is an important concept in startups – it refers to how much cash you have left in the bank and how long until you run out of it. For example, “I have 10 months of runway” means that at the current ‘burn rate’ the company will run out of cash in 10 months.
It’s a neat analogy to the runway a plane needs to successfully take off (or land) – either you have enough runway or you don’t and you ‘crash and burn’.
Cash runway can be calculated like so:
Cash on hand + cash due / Weekly burn rate = Runway (in weeks) E.g $10,000/$1000 = 10 weeks
It’s also a very important concept when mentoring/advising companies. How much runway a company has left will inform the type of decisions you need to make. This has been very prevalent in the current COVID19 pandemic, where startups have to fire people in an attempt to increase their runway.
For me, when advising founders I typically want to know how much cash runway and emotional runway they have.
Emotional runway is a new concept I’ve learn’t through helping hundreds of pre-seed/investment startup founders.
Why? Because if a startup only have 3 months of cash left in the bank what I’ll advise them to do is very different to a startup that has 12-18 months – this is the bedrock of why generic ‘startup help’ articles are not very useful unless you understand the current position of the business.
If you’ve only got 3 months of cash left you should be doing everything you can to extend that runway – let go contractors, stop marketing spend, stop unnecessary services and focus in on getting that first customer to pay now. Looking at a small ‘bridge round’ might also be an option. Worse comes to worse pick up a part-time job or contract but inveitably that means the company is over in my experience.
The problem is in the very early days most startups have a ‘unlimited runway’.
Insofar as their expenses are minimal, they might be living at home or can pay for their rent through existing part time job and happy to do all the ground work themselves i.e. free labour.
However, in this situation the concept of ’emotional runway’ comes into play which simply is, how much time until yourself or your co-founder/partner/family/friends demand you go get a “real job”?
This is a very important concept because often it is the clincher for what you need to show to yourself (and significant others) to keep putting your time and effort into an idea.
And to define what you need to show or prove to extend your emotional runway. That could customer leads, dollars into the business, partnership agreement, investment – a myriad of metrics but define them.
So, when will your partner/family demand you get a “real job”?
I now get founders to define their emotional runway – e.g. I have 6 months to prove out this concept before I need to move on, which is a very good way to get people to stop wasting their time on problems that don’t need fixing (at least, not right now in your current situation).
A formula might be:
Personal time to prove out an idea (in weeks) * Partner/Family tolerance (as a percentage against your own) = approximate emotional runway e.g. 24 weeks to prove/validate idea * 50% tolerance from family = ~3 months emotional runway BUT in reality its more like founders give themselves far too much time with ZERO considerations again significant others which means mismatch expectations and alignment.
30% of startups failed due to lack of motivation to carry on.
The reason I know this is important is that based on a qualitative look back of 80+ startups at INCUBATE approximately 30% of startups failed* due to lack of motivation to carry on due to numerous ‘triggers’ e.g. family/friends pressure, new job offer and similar.
In fact, this finding made me question a lot of general startup advice which is based on the presumption that you currently have funding, angel or VC or otherwise, of some kind to keep going in the very early days. This is simply not true.
Defining what you need to prove out to yourself and others will help keep you on track when no-one else will.
What is your emotional runway?
Footnotes
*This was a qualitative review of the INCUBATE portfolio after 5 years of acceleration and 10 cohorts. I should stress this was my interpretation of their reason to stop proceeding based on my conversations/mentoring/interviews with founders. At some point I want to dive deeper with an in-depth study on the program and companies given its such an important part of the human creativity cycle – nascent ideas, first-time founders, new career paths etc.
