What Is Your Cash Runway?

Now that you know what is your cash burn rate, you may understand this post’s question.

Your Cash Runway is the amount of time your startup has before its cash balance turns into negative.

For example, if your startup’s cash balance is being reduced by $5,000 per month, and you have $20,000 as available cash, in 4 months your startup will be out of money.

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What Is Your Cash Burn Rate?

In this very beginning, the Cash Burn Rate is certainly one of the core financial metrics you have to keep in mind, all the time.

Okay, but what is it?

Well, basically, there are 2 different burn rates:

  • Gross Burn Rate: It’s the average amount of money monthly consumed to pay for your startup’s activities. In other words, it is how much money you are spending per month to pay for things like salaries, rent, energy, marketing, development, services, etc.
  • Net Burn Rate: It’s the average amount of money your cash is being reduced per month. For this metric, you’ll consider not only your expenses, but any revenues that you might have too.
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What Is Your Value Proposition?

When a customer is considering buying a product, she will start (consciously or unconsciously) relating its features to a possible benefit for her life.

Everything that can make her life better, she’ll consider as a value.

Well, your value proposition is all the value (in your customers perspective) you are delivering through your product or service.

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Who Are Your Customers?

Based on the interviews you did with your customers, you should have a good notion about who they are (and who they are not).

However, you need more than just a shallow knowledge about them. In other words, it’s not enough to tell me they are women, in their 30s with no kids.

This is a good start. But, if you really want to be able to properly answer this question you’ll have to do much better than that.

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How Do You Communicate, Sell And Deliver Value To Your Customers?

At this point, you already should know a lot about your customers and your Value Proposition. Now it’s time to define how you’ll communicate, sell and deliver your value to them.

Here we have some examples of channels:

  • Online sales;
  • Sales Team;
  • Own Stores;
  • Partner Stores;
  • Social Networks;
  • Mass Merchandisers;
  • Retailers;
  • Sales Rep-firms;
  • Distributors.
  • Others….
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How Relevant Is The Problem You Are Solving?

It is very likely that, in your own life, you’ve faced the problem you’re trying to solve—in your work, with your husband, your wife, your kids, your hobbies, etc. And for that problem, you didn’t find a good solution in the market.

Or maybe you are familiar with a bad situation that happens with other people and you feel compelled to help them with your knowledge on solving that issue.

So, you may know this problem quite well. Right?

However, when you decide to build a business based on a solution you’ve created to address a problem, it is not about you and your thoughts anymore. It’s about your customers’ lives.

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How Much Money Does Your Startup Need To Generate Traction?

Certainly, this is the kind of question you need to answer in order to improve your startup’s chances of success.

While the lack of cash means the end of your startup’s activities, raising too much money may force you into unnecessary sacrifices—delivering too much equity to investors, accepting unfavorable terms, etc.

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Define Your Startup’s Minimum Viable Product (MVP)

You’ll only be able to generate good traction when all the three elements of your idea are properly defined—the problem, the solution and the business model.

Which means your assumptions about each one of these elements have to be true.

And to know which of your current assumptions work and those that should be replaced by better assumptions, there is just one way, my friend: to validate them in the market—with real people.

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Think Exponentially When Building Your Startup

With the first version of your business model canvas, you are ready to check if your assumptions will succeed or fail.

However, I ask you to think BIG.

Salim Ismail, Michael Malone and Yuri Geest identified 10 attributes of what they call the Exponential Organizations (check their book here):

An Exponential Organization is one whose impact (or output) is disproportionally large—at least 10x larger—compared to its peers because of the use of new organizational techniques that leverage accelerating technologies.

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What Is Your Business Model Hypothesis?

After assessing your startup idea, it’s time to translate it into a business model hypothesis, which will help you on better:

  1. Visualizing the idea: the business model hypothesis will consolidate the problem and the solution in the business model component called “value proposition” which—with other 8 components—will bring you a clearer picture of what you’re aiming to build.
  2. Communicating the idea: once it is easier to visualize it, it will be easier to communicate your idea to other stakeholders as: employees, co-founders and investors.
  3. Iterating the idea: With a structured framework, it will also be easier to analyze and define which assumptions should be tested first and how could you iterate your business model hypothesis in order to achieve success.

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