Thoughts on managing runway and burn – Mark MacLeod

June 3, 2020 - Mark MacLeod

Thoughts on managing runway and burn

Venture capital is a great thing. It enables us to grow companies far faster than we could organically. It enables us to think big. To move fast, be aggressive and chase huge outcomes.

I’m sure you have noticed that funding rounds keep getting bigger. Today’s series A looks like yesterday’s series B.

But….

There is a danger to spending too fast on too many things. For one, cash is to your business as blood as to your body. When you’re burning, you’re dying.

The failure rate for startups is high. While there are many underlying causes of startup failure, the actual cause is running out of cash. You can keep figuring it out as long as you’ve got the money.

If you have successfully raised a funding round, then you are already on a good path. Otherwise, you would not have gotten the money. So, while you can and should be more aggressive, you don’t have to suddenly change your stripes and spend in every direction at once.

Mike McDerment, co-founder and FreshBooks once told me about conversations he had with his original angel investor. His investor would ask him how big he thought the company could get. Mike honestly answered, “I don’t know. I’m just putting one foot in front of the other”.

Mike did not need or want to commit to a “go big or go home”, high burn strategy. In fact, the company was ten years old with over 130 staff before raising its first venture round.

It was a similar story with Shopify. It was angel funded and had been profitable before deliberately deciding to burn because they “knew” they were ready.

Both companies were many years into their journey before going into high burn.

The point here is twofold: i.) Good things generally take time, so settle in for the long haul and enable yourself to actually survive and thrive for that journey by managing burn; and ii.) Hit burn hard when you KNOW you have nailed product-market fit and found repeatable and scalable channels for growth.

Questions to consider

Are you clear about what the next big value-creating milestone is for your business? The milestone that will either enable you to raise the next round, get to profitability or exit.

How confident are you that you will hit that milestone in runway? What can go wrong? How much wiggle room do you have?

Examine your current spend: What spend is truly contributing to achieving that next big milestone? What spend isn’t? Is there fat in your current spend that can be trimmed without impacting your trajectory towards the next big milestone?

Photo by Will Drzycimski on Unsplash

Your journey is never done

Sign up to my newsletter and join an inspired community of leaders who realize that the journey to achieving their full potential is never done.

    If you’re curious about my coaching and deal work you can learn more here.

    back to blog

    Latest Blog Feed

    All employee departures should matter

    In the rush to create shareholder value, raise more capital, get to an exit, break even – or whatever the next milestone is for your business, we often get de-sensitized to what is happening – both to ourselves and our […]

    read more

    How much value did you add today?

    I work with a CEO whose company has daily targets for enterprise value created. I love this for two reasons: 1. I believe that speed is both the primary strategy and primary tactic for a high growth company. All else […]

    read more

    Sometimes you don’t need an investment bank

    Back when I was an investment banker, I joked regularly that bankers have a well-deserved bad reputation. The fact is, most bankers are useless. Especially in the mid-market (where most VC and PE funded companies are). They charge far too […]

    read more

    Contact

    Email : me@markmacleod.me

    Follow me:

    Mark MacLeod ICF Member

    Send Me A Message