In the startup world, “runway” refers to how long the cash on hand will last. It’s a good indicator of how long a business can go between funding rounds, and it’s easy to calculate.
The amount of cash you spend each month is your “burn rate”. Dividing the amount of cash you have in your bank account equals the number of months in your runway. Based on that figure, you can plan when you will need to raise funds or get to breakeven/cash flow positive operations.
Experts argue about when the length of the runway starts to become a problem. But they all agree that the longer the runway the better. The longer a company can go before securing additional funding, the more breathing room they have and the less that financial limitations compromise their ambitions.
With that in mind, here are three tips to extend your startup runway as far as possible:
Max Out Your Revenues
The more money you make the less you need to raise, which is easier said than done, of course. The easiest step to take to increase revenue is to simply raise prices. However, be careful not to raise too much or you run the risk of losing customers and reducing future customer acquisition. Raising prices as much as possible but not too much takes some careful math.
Other strategies to maximize revenues include trying to upsell or cross-sell to existing customers, add new features or services that you can change for, or move into adjacent markets. These strategies take time to pay off, and may involve an added cost, so it’s best to plan for these in advance if possible.
Control Your Costs
Lowering your burn rate can extend your runway significantly. Start by cutting any unnecessary discretionary spending – eg. travel and entertainment. Then look at the two biggest cost centers at most startups: labor and rent. Could you lower them by moving to remote work or condensing job responsibilities? Finally, look for waste and redundancy such as unnecessary marketing spending or duplicate subscriptions. With any cost cutting measure, though, be sure to evaluate the impact it will have on operations, revenue, and growth before bringing the ax down.
Explore Alternative Funding Sources
There are ways to fund a startup and extend runway without diluting equity or soliciting investor involvement. Corporate credit cards are one option to consider. Venture, or other debt, and selling receivables are others. There are advantages and disadvantages to every option, and great risks for taking on too much debt too quickly, but founders should at least consider all the various ways they can secure funding (without giving up equity) when the need arises.
There are many ways to extend your runway – but only a few right ways. How do you pick the right path (and avoid all the wrong ones) without wasting precious time evaluating options? With the help of the advisors at Proseer. Give your startup the very best chance at success – contact us.
