The old definition – a path or a roadway over which something runs – has been updated for the times to mean: the length of time your company has until it runs out of cash. Jason Calacanis, a successful geek entrepreneur (and I use that word with all due respect) said the following:
“You need to figure out your runway immediately. This is really easy to
calculate: you look at how much cash you burn every month and divide
that into how much cash you have in the bank. Your accountant can do
this for you or you can simply look at your P&L and bank statement.
Once you know how many months you’ve got left, you’ve got to do the
hard work of trying to extend it by at least 1/4. This means cutting
staff, negotiating with your landlord and cutting any and all
recurring bills. You then need to look at your revenue streams and
figure out if you can double them. In most cases, if you do these two
simple things, you will have increased your runway by 50-100%.
If you double your runway, your chances of figuring out what your business
actually is will go up exponentially.
You also need to do a monthly P&L review with your management team.
Look at every single recurring cost you have and figure out how to cut
it. In an up market, this level of obsessiveness is often wasteful,
because you’re in a race to take market-share. In the case of MySpace
vs. Friendster vs. Facebook all having unlimited funds for a period of
time, this makes total sense. Why worry about $100,000 in server costs
if you’re racing to see who gets bought for a billion dollars first?
However, this is not that time. You have to change your style.
There are times to hit the gas and there are times to conserve your gas.”
So do you have enough cash to ride out the next 6 to 9 months until things turn around, assuming that’s the period of time in which thing do turn around? If not, what where will it come from? Or what are your alternatives?
Read the entire article at http://calacanis.com/?s=runway
Read more Jason Calacanis at http://calacanis.com/2008/09/29/the-startup-depression/