The question is really impossible to answer as it depends on forces outside your control such as the willingness of investors to invest. They can switch on and off at anytime with no warning.
From my outsiders perspective you want to have the ability to become cash flow positive within 3 months if you need to. Also keep in mind if this is going to be possible if the funding environment changes - if your customers are also dependant on investor funding then this is going to be very hard as the start ups from 2000 found out.
The question is really impossible to answer as it depends on forces outside your control such as the willingness of investors to invest.
One of the things I've seen a lot of in startups is people failing to understand the difference between planning and strategy. Every startup has a plan - a detailed list of things that they're going to do. Hopefully the founders update the plan as they get new data. If they fail to execute that plan they're often "Well, things happened that we had no control over!" and the startup dies.
What startups need is a strategy. The difference between planning and strategy is that a strategy accounts for things that are uncertain and beyond your control. There is a huge difference between "Our marketing burn is $3000/month because Facebook ads are $100/day" and "We'll spend $3000/month on marketing, split between Facebook and Twitter, skewed to Facebook while our acquisition cost is $0.5/user but shifting towards Twitter if Facebook ad prices start to ramp up as they get less effective." The first is planning. The second is strategy.
So yes, success depends on things outside of your control but if you fail because of that then it's still your fault.
So yes, success depends on things outside of your control but if you fail because of that then it's still your fault.
Unless the forces are so strong that it doesn't matter what plan you have in place.
I lived through the 2000 crash (Genomics, but it was basically as crazy as the dotcom area) and survived. I wish I could say it was due to my better planning, but mostly it was luck. When the forces of finance really turn it washes away both the good and bad planners.
Yes, true. It's not an absolute. Sometimes it could be the case that something huge and entirely unexpected comes along. But that's quite rare - it's more likely to be the founders lack of strategic thinking than an unforeseeable catastrophic event.
But that's quite rare - it's more likely to be the founders lack of strategic thinking than an unforeseeable catastrophic event.
I am not sure how rare these are - I have lived (and survived) through two in the last 15 years. I guess the other factor is how long your runway needs to be - I come from the biotech side of tech where you need a runway longer than what a full loaded A380 needs.
I actually think more of a risk is how tightly the money flows are within tech. This really helps to drive growth when the investors are keen, but the same tight linkages are a killer if anything disruptive happens. A small shock can be quickly amplified to something pretty serious.
Of course I agree with you that the most likely cause of start up death is internal.
That's the key, isn't it? Of all startups, how many were born and died within that 15 year span, without being affected by either event? How many were created after, not being affected either?
I think you're talking about learning to run when the part that has people worried here is learning to walk.
Of course my perspective is affected by my experience and background. As I mentioned I am in from an area with really long runways which tends to make you more concerned about investor fashions and herd behaviour.
My main point is you should always have a plan for how to become profitable in a relatively short period of time if needed. Hopefully you won't need to put it into action, but the time you will save not having to try to figure this out at the last moment might be the difference between life and death of your start up.
that's the trick, isn't it -- it's not so much your burn rate, because you understand that; it's what your customers cut if they decide there's a bubble. eg yahoo during the dotcom bubble: huge chunks of vc were flowing through to yahoo ads.
That said, I don't know what Fred means, but $10k/engineer is ridiculous. That's earning well under $100k/year by the time an employer pays social security, health insurance, employment taxes, and rent. You have to be smoking crack to live in sf, home of the $3k/mo apartment, and earn so little money. A standard rule of thumb, more common in nyc than here, is your gross income needs to be 40x your rent.
At a startup with 15 employees I'd guess around 13 are engineers (or engineer related: developers, designers, product, etc.). So wouldn't that mean startups should have a higher burn rate if they are tech heavy?
If you consider an average engineer has a loaded cost of $250k per year and you have 13 of them, that means your monthly burn rate would be $270k before accounting for the other 2 employees (most likely founders taking a much smaller salary). This would also be a conservative estimate based on an average salary of $100k (which is barely scraping by in NYC and SF if you're straight out of college with loans).
So this must mean startups spending less that $250k with 15 + employees are paying well under market rate (by at least $20-$50k)? But that also wouldn't correspond with the salaries being offered via Angel list and Glassdoor. So something isn't lining up here.
From my outsiders perspective you want to have the ability to become cash flow positive within 3 months if you need to. Also keep in mind if this is going to be possible if the funding environment changes - if your customers are also dependant on investor funding then this is going to be very hard as the start ups from 2000 found out.