🔗 Default Alive or Default Dead?

Default Alive or Default Dead?

Assuming their expenses remain constant and their revenue growth is what it has been over the last several months, do they make it to profitability on the money they have left? Or to put it more dramatically, by default do they live or die?

Trevor Blackwell has made a handy calculator you can use to find out.

The reason I want to know first whether a startup is default alive or default dead is that the rest of the conversation depends on the answer. If the company is default alive, we can talk about ambitious new things they could do. If it’s default dead, we probably need to talk about how to save it. We know the current trajectory ends badly. How can they get off that trajectory?

… But as the company grows older, the question switches from meaningless to critical. That kind of switch often takes people by surprise.

I propose the following solution: instead of starting to ask too late whether you’re default alive or default dead, start asking too early.

The reason is a phenomenon I wrote about earlier: the fatal pinch. The fatal pinch is default dead + slow growth + not enough time to fix it. And the way founders end up in it is by not realizing that’s where they’re headed.

In any case, growing fast versus operating cheaply is far from the sharp dichotomy many founders assume it to be. In practice there is surprisingly little connection between how much a startup spends and how fast it grows. When a startup grows fast, it’s usually because the product hits a nerve, in the sense of hitting some big need straight on. When a startup spends a lot, it’s usually because the product is expensive to develop or sell, or simply because they’re wasteful.

If you’re paying attention, you’ll be asking at this point not just how to avoid the fatal pinch, but how to avoid being default dead. That one is easy: don’t hire too fast. Hiring too fast is by far the biggest killer of startups that raise money.