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Maximizing Startup Success: The Power of the Runway Metric and Mitigating Risk.

Writer's picture: Dimitris AdamidisDimitris Adamidis

Updated: Mar 14, 2024


Runway Metric

82% of startups use Runway as a metric to track their financial health. The study found that startups with a shorter runway are more likely to fail. Startups with less than 12 months of Runway are 10x more likely to fail than those with more than 24 months of Runway. The data supporting that obvious connection is nice.


Startup runway is the amount of time a startup has before it runs out of cash. It is calculated by dividing the company's cash reserves by its monthly burn rate.


The most important thing to know about this metric is the typical practice around the time the company has based on the output; if you are an investor or evaluating the company's performance as an employee or executive, you must know the following:


  • Startups with a shorter runway are more likely to raise additional funding. They must raise money to cover their expenses and extend their Runway.

  • Startups with a shorter runway are more likely to be acquired. It is because larger companies may see them as a good acquisition target that can provide them with the resources and support they need to succeed.

  • Startups with a shorter runway are more likely to pivot. They may need to change their business model or strategy to become profitable.


In short, if the company underperforms on this metric, you better prepare for a rocky path ahead. One way or another, tough decisions in the coming months. Although, it is sometimes a good thing and can create a significant upside if managed well. There are plenty of examples of successful pivoting. However, being short on the Runway metric in the current environment limits your options. It's just the economic cycle we are in that prevails.


Let's understand the example and how to mitigate the risk of making your Runway metric limiting your options. For instance, I took a consulting business called StratEdge Solutions which designs, manufactures, and assembles complete semiconductor lines. Again, this is a private company that I'm using to illustrate better the consulting business example. I cannot access their financials, so these are entirely fake numbers. They are a well-managed company.


Assuming the following figures for StratEdge Solutions:

  • Monthly revenue from consulting services: $120,000

  • Monthly expenses (including employee salaries, office rent, utilities, etc.): $80,000

  • Cash reserves: $500,000


Now let's calculate StratEdge Solutions' Runway:

  • Monthly Burn Rate = Monthly Revenue - Monthly Expenses

  • Monthly Burn Rate = $120,000 - $80,000

  • Monthly Burn Rate = $40,000

Runway = Cash Reserves / Monthly Burn Rate

Runway = $500,000 / $40,000

Runway = 12.5 months


In this example, StratEdge Solutions has a runway of 12.5 months. This means that based on their current monthly revenue, expenses, and available cash reserves, they can sustain their consulting operations for 12.5 months before depleting their funds, assuming no changes in revenue or costs (that's an important assumption).


Conclusions: The runway metric is a vital measurement for every growing company. This is not important from the affordability standpoint but, more importantly, creates conditions for sustainable organizational development. Using that could work backward on the internal initiatives planned despite most of us planning continuously or without the end dates. For the same reason, this metric is not necessarily a good fit for "agile" planning (often used for lack of accountability). Getting this right means making decisions that impact that metric from both sides, revenue generation, and expense management perspectives. It's a fair dance you have to make between both, keeping your cash flow scenarios constantly updated based on critical decisions. Finally, don't assume this metric is for a few individuals in your company. Your entire executive team should be accountable for making decisions and prioritizing key initiatives evaluating the impact of the metric.


Here are the practical suggestions for your RevOps and Finance teams to help you with that effort:


  1. Scenario Planning and Forecasting: Revenue Operations and Finance teams should conduct scenario and financial forecasting to anticipate potential challenges and identify growth opportunities. By analyzing different scenarios and making informed projections, they can develop strategies with the GTM leaders to mitigate risks, allocate resources effectively, and make data-driven decisions that positively impact Runway.

  2. Seek Funding Opportunities Early: Revenue Operations and Finance teams can explore funding opportunities to inject additional capital into the business if the Runway is short. This may involve seeking investments from venture capitalists, angel investors, or strategic partnerships. They can also consider options like bank loans, lines of credit, or crowdfunding to bridge the funding gap and extend the Runway. Having a robust selection of options and evaluating these options regularly helps you to understand what tools are available each time the economy is cyclical. Now the most significant benefit is that you can start these conversations earlier without waiting for the eleventh hour and not being able to close a new round with investors you want to bring to your board. Why would you wait till the very last moment with your homework anyway?

  3. Improve Cash Flow Management: Effective cash flow management is crucial for extending the Runway. Finance teams should closely monitor and manage cash inflows and outflows. Both teams must mercilessly continue to allocate tasks to reduce the excessive budgetary spending that is not in line with the top line. Discipline is the way.

  4. Leverage your deal desk: Implementing early payments or incentivizes customers for timely payments should always be in place. Additionally, they should optimize payment terms with suppliers and manage working capital efficiently to ensure a positive cash flow.

  5. Revenue Diversification: explore unconventional avenues to diversify your revenue streams. This could involve identifying untapped markets or customer segments, exploring partnerships or collaborations with complementary businesses, or developing new products or services that align with their core competencies. Yes, this might be a challenging solution for a small company, but as you expand, you should consider that in your financial planning scenarios. A plan B is a good idea.

  6. Co-Selling Partnerships: facing runway challenges may push your organization into cost-sharing or co-selling partnerships with other organizations. This involves sharing resources, infrastructure, or sales efforts to leverage each other's strengths and reach a broader customer base. By pooling resources and splitting costs, companies can extend their Runway while expanding their market presence.

  7. Creative Financing Strategies: explore innovative financing strategies beyond traditional funding sources to mitigate runway constraints. Alternative funding options like revenue-based financing, where capital is provided for a percentage of future revenue, are an option for some organizations. You may also consider strategic partnerships, joint ventures, or licensing agreements to access additional resources without a significant upfront financial burden.

  8. Lean Operations and Fast Decision-Making: adopt lean operations principles to optimize efficiency and resource allocation. Eliminate wasteful processes, and wishlist-like requests, focusing on core value-adding activities. Empower your teams to make intelligent decisions while keeping them accountable. By embracing a culture of innovation and adaptability, you can optimize their operations, reduce costs, and extend their Runway. Pivot their thinking from follower to enabler that operates off the principles.

  9. Customer-Centric Strategies: prioritize customer-centric strategies to drive revenue growth and enhance customer loyalty. You must keep your customer. Fight for it so that your profitability grows. This is not about giving them discounts forever or each time they ask. That could be a better strategy, as this reflects your product dispensability or lack of good storytelling where you're going. But focus instead on customer experience. Involve personalized marketing customer success approaches, focusing on a high level of product adoption and leveraging customer feedback to refine products and services. Don't feed them only with what they want but leverage your POV to show them where you take them and what you do to make the transition easier.

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