The Most Important Metric
Paul Graham coined the terms "Default Dead" and "Default Alive." It is the only binary that matters for a startup.
- Default Dead: If expenses remain constant and revenue growth remains constant, you will run out of money before reaching profitability.
- Default Alive: You will reach profitability with the money currently in the bank.
Most founders avoid asking this question because the answer is terrifying.
The 30% Illusion
When calculating runway, founders typically look at:
Bank Balance / Average Monthly Burn = Months Left
This is dangerous because it ignores The 30% Illusion. Unexpected costs—legal fees, server spikes, delayed accounts receivable, and "one-time" hiring fees—almost always add a 20-30% buffer to your theoretical burn.
If your spreadsheet says you have 10 months, you realistically have 7.
Revenue is Not Cash
A common mistake in runway calculation is treating Bookings or ARR as Cash Flow. If you close a $100k enterprise deal but they pay Net 60, you cannot use that money to make payroll next week.
Cash is oxygen. Revenue is food. You can survive weeks without food, but only minutes without oxygen.
The Vicious Cycle of Short Runways
When runway drops below 6 months, a psychological shift happens:
- You stop hiring (stunting growth).
- You stop marketing (stunting growth).
- You start fundraising from a position of weakness.
Investors can smell desperation. Raising money with 3 months of runway is like trying to buy insurance while your house is on fire.
Check Your Pulse
Use the Runway Calculator to input your real bank balance and gross burn (not net). If you are Default Dead, you have only two options:
- Cut costs immediately (painful).
- Raise money immediately (difficult).
Waiting makes both options worse.