Before the Cash Runs Out: How to Manage Runway and Burn Rate
Melbourne, 20 August 1860. In Royal Park, around 15,000 people are seeing off an expedition that intends to cross Australia from south to north for the first time. At its head is Robert O'Hara Burke; his deputy is the young William John Wills. Nineteen men, twenty-three horses, six wagons, twenty-six camels.
The baggage is dazzling: two years' worth of supplies, a cedar-topped oak camp table with two chairs, water filters, signal rockets and a Chinese gong. Altogether, close to twenty tonnes. Weighed down by the load, bad weather and poor roads, the expedition takes two months to cover the 750 kilometres from Melbourne to Menindee. The mail coach did the same journey in little more than a week.
Along the way the load is lightened. Sugar and lime juice are left behind, and some 270 litres of rum, brought along to give to the camels, are poured away. Burke also dismisses several men, citing a lack of money.
A camp is set up at Cooper Creek. On 16 December 1860 Burke grows impatient and dashes for the north coast with Wills, King and Gray. They take six camels, one horse and only three months' food. William Brahe, left in charge of the camp, is told to wait three months. Wills, who reads the maps more realistically, quietly asks him to wait four.
Reaching the swamps of the north coast takes fifty-nine days. By then they have twenty-seven days' food left. On the way back the rains begin, some of the camels are killed and eaten, and Gray dies on the road.
Burke, Wills and King return to Cooper Creek on the evening of Sunday 21 April 1861. The camp is empty. Brahe waited eighteen weeks instead of thirteen and, with food running low, left that very morning. He carved a mark on a tree, "DIG", and buried some supplies at its foot. The gap is about nine hours. A few weeks later Burke and Wills die of starvation on the creek bank. King is kept alive by the Yandruwandha people, who give him food and shelter.
The load was too heavy on the first day. The food was too little on the last. Both mistakes were two sides of the same calculation.
How many months will your camp wait?
Plenty of startups die the same way. Not from a bad idea first, but from a cash position that does not add up. Plenty of money and a big office at the start, then a few months that are not enough.
In an interview on Failory, Jordi Miró describes Lernin Games, which he founded in Barcelona in 2017: educational games for children aged two to six. He and his co-founder built the first version, with twenty games, themselves, and all five of the venture funds they met made an offer. They raised €1.5 million from K Fund in their seed round and quickly built a team.
The app was free and the user numbers were good. But when they went looking for new investment, the answer was always the same: show revenue. They switched to a subscription model, but there was no time left to test it. According to Miró, monthly recurring revenue reached around $10,000 and was growing. But they were too late. The cash ran out, and the company closed in 2019.
Before the cash runs out: how to manage runway and burn rate
Calculate your net burn rate
Burn rate is the money leaving the bank every month. What you really need to watch is the net figure: monthly expenses minus monthly cash collected. Count the money that lands in your account, not the invoices you send.
Write your runway in months
Runway is the cash in the bank divided by your net burn rate. If you have 600,000 TL in the bank and lose a net 50,000 TL a month, you have twelve months. Recalculate this number every month and share it with your team. At Cooper Creek, everyone knew a different number: Burke had said three months, Wills four.
Leave a buffer, like Wills
Funding rounds and sales always take longer than planned. Start looking for new money while there are still months left in the bank. Build your plan not on three months but on Wills's secret four.
Leave the oak table behind
Miró says that if he did it again, he would raise less money and build a smaller team. And the big office they chose so they would not have to move a year later? He would keep that smaller too. Fixed costs are the load you cannot cut in a bad month. Keep them as light as possible in the early days.
Talk about revenue from day one
This is Miró's clearest lesson: set up your revenue model on day one, not a year later. At Lernin, the option that brought in cash soonest was the annual subscription. Collecting payment up front is the quietest way to extend your runway.
Cash and critique
The Turkish word for cash, "nakit", comes from the Arabic "naqd". The Nişanyan Dictionary gives two of its meanings side by side: pecking and criticising, and also metal coin, money. "Tenkit", Turkish for criticism, comes from the same root. In Arabic, one meaning of the verb is also to separate the good from the bad, just as a money changer tests coins one by one and picks out the counterfeits.
The story of the word "runway" is interesting too. According to Etymonline, in 1833 American English it described a path an animal, especially a deer, used every day. The airstrip meaning arrived around 1923. For a startup, runway is the ground left ahead before it touches down.
Managing your cash means critiquing it afresh every month. Which spending is real, and which is counterfeit?
Final word
In chapter twelve of Charles Dickens's David Copperfield, Mr Micawber, released from the debtors' prison and about to leave town, gives young David some advice. First he says the advice is worth taking precisely because he himself never took it. Then he adds:
"Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
The difference is one shilling. Which side of that shilling is your company on today? And how many months before you get back will your camp be empty?
If you want to test your idea with a small version before burning money, have a look at What Is an MVP, and How Do You Plan One?
