06 Apr 2016
Unless you either live in Silicon Valley, or, like me, spend far too much of your time reading about people who live in Silicon Valley, you may be unfamiliar with the term ‘runway’ in this context. When talking about startups, runway is simply a measure of how long a not-yet-profitable startup has left to live. It’s usually expressed in months, and is calculated as cash in the bank / burn rate, where burn rate is the amount of money the startup is losing each month.
So for BugMuncher, using the figures from the end of February, BugMuncher’s burn rate was £1,029.72 and cash in the bank was £13,094.22. 13,094.22 / 1,029.72 = 12.7, so BugMuncher has over 12 months of Runway
It’s an oversimplified model, as it doesn’t take growth into account, but I find it to be a very useful metric, because sales can and do dry up. Consider BugMuncher’s last two months - January had 29% revenue growth, where as February had just 4%. At this early stage, growth can fluctuate wildly, which is why I like the runway metric - as it tells me how long BugMuncher has left to live if growth was zero.
It’s also cool to look at how runway changes over time, eg: When I started working on BugMuncher full time in September 2015, I had 13.8 months of runway. The last six months have only consumed one month of runway, which is pretty reassuring.
I’ve been thinking about runway a lot recently, probably because February was a slow month in terms of growth. I’ve always had a rough idea of what I’d do if the runway started to look a little short, but I’ve decided to put a concrete plan together.
I genuinely don’t think I’ll ever need to put this plan into action. BugMuncher is still very much default alive, and is on target to reach profitability long before the runway runs out, but I’m a strong believer in “hope for the best, prepare for the worst”.
I truly believe any not-yet-profitable startup should have an action plan to make the most of their runway, especially bootstrapped startups. So without further ado, here’s my plan’s timeline:
12 Months Runway Left
This is where I am now. No action needs to be taken, everything is looking good, just thought it would be a good starting point for this timeline.
6 Months Runway Left
Most days I work from a local co-working space, and while I feel like I’m more productive working there than when I work from home, I do pay £180 / month for my desk. I also drive there when it’s raining, and as I live in sunny ol’ England, that means I drive in most days, so there’s the fuel cost as well. If my runway were ever to get down to 6 months, I’d stop using the co-working space, which would probably save around £200 each month.
When I first started at the co-working space, I was still freelancing, and not living to such a tight budget. So instead of just moving the arguably overpriced Apple Cinema Display I already had from my home to the office, I bought a second one. Along with another keyboard and multi touch track pad to go with it. If I stopped using the office, I’d sell the spare display, keyboard and mouse, which should fetch at least £500.
3 Months Runway Left
At this point things would be starting to look a little scary. I really hope my runway never reaches 3 months. Like, really, REALLY hope.
At 3 months I’d sell my pride and joy - Lara, my beloved motorcycle. Much like the second Cinema Display I mentioned in the 6 months section, I bought Lara in more prosperous times, ie: before I decided to give up freelancing and go full time on BugMuncher.
Lara is a 2009 BMW F650 GS with pretty much every extra imaginable. She should sell for at least £4,000, which at my current burn rate translates in to an extra 4 months of runway. It would pain me to sell her, but in the unlikely event of reaching just 3 months runway, sell her is what I’d do.
3 Months Runway Left (again)
Selling my motorcycle would at lest double my runway, taking me back to over 6 months, so the next point at which I’d need to take action would be reaching 3 months again.
If runway reached 3 months for the second time, I’d start freelancing again, but I’d limit myself to a maximum of one day a week, ideally less. Conservatively that this should bring me an extra £500 / month.
I’d also start actively looking for investment. I know it goes against my bootstrapping mentality, but if it ever came down to either find investment, or give up on BugMuncher, I’d chose the former.
2 Months Runway Left
If runway ever reached 2 months, it would mean I was unable to secure funding. I could try to borrow money to keep working on BugMuncher, but I have a strong aversion to debt, so at 2 months runway I’d start freelancing more and working on BugMuncher less to bridge the gap in my income.
At this point BugMuncher would become sort of a side project again, only one that was bringing in a decent chunk of money, allowing me to still devote a good amount to time to it.
The point is, BugMuncher will never die :)
On a personal note
I really want to stress how strongly I believe I won’t have to put any of this plan into action, BugMuncher is growing faster than I ever predicted, and (spoiler alert) March was a really great month. The reason I want to stress this so much is just like when I wrote the first post of my journey to profit, I’m scared. I’m scared someone could read this and mistakenly think BugMuncher is struggling, or running out of money. I’m scared it could cost me a potential customer, or worse still, cause an existing customer to cancel.
I’d gotten so used to posting these completely transparent blog posts that I’d forgetting what it was like to be irrationally scared of the consequences. I actually wrote most of this post last week, and then chickened out an abandoned it. I really had to force myself to finish this post and publish it.
As always, I’d love to hear what you think, so please leave a comment below. Full details of March’s numbers will be coming on the 11th April.
comments powered by Disqus