Software Growth

Runway

Runway is how many months your company can keep operating before the cash runs out, at the current net burn rate.

Runway is the amount of time you have left. You divide the cash in the bank by what you lose each month and get a number of months. It is the most practical measure of risk in an early company, because it tells you how long you have to find growth, raise money or cut costs.

How to calculate runway

Example: you have $180,000 in the bank and a net burn of $15,000 per month ($25,000 out, $10,000 in).

Use net burn, not gross burn. The a16z guide to startup metrics says investors look at net burn to understand runway, and that companies fail when they run low on cash without enough time left to raise funds.

Why the formula is optimistic

The simple version assumes burn stays flat. In reality it changes:

  • If you plan to hire, use the burn after the hires.
  • If revenue is growing, true runway is longer. If churn is rising, it is shorter.
  • Annual bills and tax payments make some months far worse than the average.

A better habit is to keep a month-by-month cash forecast for the next 12 months and see which month hits zero.

How much runway is enough

There is no official number, but raising money takes time and founders tend to underestimate it. Many founders aim to start raising with 9 to 12 months of cash left, and to treat anything under 6 months as urgent. These are rules of thumb from experience, not data.

The better question is whether your trajectory ends in profit before the cash is gone. That is what default alive measures, and it is more useful than runway alone.

Ways to extend it

  • Cut costs that do not drive growth (unused tools, paid channels with poor payback).
  • Sell annual plans to collect cash up front.
  • Raise prices.
  • Reach ramen profitability, where revenue covers founders' living costs and runway becomes effectively unlimited.

For bootstrapped founders

If you fund the business from savings, your runway is personal as well as corporate. Count your own living expenses and the date you are willing to stop. A profitable bootstrapped product has no runway problem at all, which is a major reason people choose that route.

Sources

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