Managing Cash Burn

So maybe you’ve raised some money for your young startup. And maybe you’ve got a little revenue coming in now. But chances are you are still burning cash each month. And that means you’re watching the balance in the corporate bank account move lower most days. It’s no fun. I’ve run two startups myself; I have been there.

You are generally left with two choices if you are in this position. Do you keep spending like you have been, hoping that you can either bring in new investor cash or that the revenue will pick up speed? Or do you reduce the cash burn by cutting spending? Not a good position to be in for sure. You want to show confidence in your business, but you don’t want to run out of money. Unfortunately, I don’t have a one size fits all answer here. Each business situation is going to be different. I can relay two of my own experiences.

At a healthcare focused FinTech I managed we had this challenge. The cash in the bank got down to about three months runway. It was month nine of trying to raise outside capital, and we were down to one remaining serious investor who was taking a long time with their diligence. My co-founder and I were sick and tired of funding the operating losses out of our personal bank accounts. We made the hard decision to cut staff and reduce the burn significantly, and it worked out. A few months later, that investor came onboard and the business is still rolling today.

The second time I hit this problem was at a high school sports startup I founded. With that one, we bounced around for over a year chasing product market fit and burning cash. And it was my cash, since I angel funded the darn thing for the whole time. As the end was approaching, I had determined I was not going to put any more money in, and the business wasn’t going to take outside investment dollars without a solid business plan. That time, I decided to keep the burn going all the way until the bank account was empty. I felt that would give us the best chance to zero in on a successful business model. Well, we ran out of cash and I made the hard call to let that business die. Looking back, I feel confident I did the right thing. While that business was a lot of fun, it was never going to work. Cutting the burn and extending the runway would have just delayed the inevitable.

Thanks for reading today’s post, I hope this helps you think about managing your cash burn for your startup.