Entrepreneurs: Know and Control Your Burn Rate
by Miki Saxon
Poking through 13+ years of posts I find information that’s as useful now as when it was written.
Golden Oldies is a collection of the most relevant and timeless posts during that time.
Burn rate is why companies (and people) should budget. Unfortunately, budgeting is often driven by burn rate when it should be vice versa — as most learn the hard way. Hard, but not impossible, just ask the guy who went from a burn rate of over half a million a month to $15,000. Although this post is from 2016 when money was tight and focused on entrepreneurs, it applies to companies of any size, as well as people, no matter their income.
Read other Golden Oldies here.
Last summer David Bladow, co-founder and CEO of flower delivery startup BloomThat, had the worse kind of ah-ha moment after deciphering the company’s accounting — a self-described “convoluted mess.”
What he found was a monthly burn rate of $550K that meant the company would be out of cash in just 4 months.
That knowledge drove a laser focus to change.
Now instead of shutting its doors in November, its self-diagnosed death date, the startup launched nationally on February 3. The company that was burning through half a million a month is now down to $15,000 a month.
BloomThat did early what every founder should be doing now.
Yesterday Mark Suster wrote about how to figure the right burn rate for your company and last week we talked about doing more with less.
Actually, I think the tightening of funding is a very good thing, although it will create a certain amount of carnage, it will force founders and their teams to grow up.
If that sounds harsh, so be it.
Funding based on unproven future sales is driven by hopes that are heavily shaped by outside circumstances — circumstances beyond any founder’s control.
Sam Altman warns that funding is not a guarantee of success and in the next few years David Bladow, Andrew Wilkinson and dozens like them will prove that horses have the staying power that unicorns lack.
Flickr image credit: Tsutomu Takasu
