You try to prepare for it. You know it's going to happen. And you remind yourself that it's all part of the plan. But there's nothing quite like watching your bank account drain dollar by dollar, month after month, to instill a sense of existential foreboding. Though it's called the burn rate, that term doesn't really capture the drip-by-drip unease of spending more money than you're making as you race to build something that catches on before the cash runs out.
At my startup, Iodine, we've been judicious about our capital. We've hired prudently, avoided splurges, and kept costs to a minimum. We even have some revenue coming in. But still, we're burning capital each month. At the rate we're going, I estimate that we have 13 months of runway. Which might seem like a lot, but it isn't.
There are a few ways for us to think about burn rate. One is to regard capital as the fuel that is keeping our company alive for a finite period of time, during which one of two things will happen: 1) We prove our company to be a worthy proposition, which will bring it more investment or increased revenue and allow us to stay in business, or 2) we fail to create a worthy proposition, and it's time to move on. If we see capital in this light, our most essential task is to reduce the burn to a simmer and buy as much time as possible.
But time is only one dimension at play here. A startup entrepreneur needs to operate in at least three dimensions at once: There's time, there's money, and there's your target, the growth you need to achieve to demonstrate that you have a viable business.
This perspective invites another way to think about burn rate. It's not enough to be smart with what we have in the bank. We must also decide where our limited resources can do the most good in the least amount of time.
More than just buying time, our capital is also buying opportunities--meaning that sometimes we might choose to spend money that actually takes time off the clock, but could create a better chance of hitting our target before the time expires.
We've been evaluating a couple of projects accordingly. As a consumer-centric company, we've decided to double down on search engine optimization and signed up some external SEO experts who will help us turn the right dials. At the same time, rather than build the mobile app of our dreams in-house, we've opted to hire an outside shop to build a good-enough-for-now version. And while we've decided not to hire summer interns this year (not enough bang for the buck), we have opened our wallet to buy some data sets that will let us build a few super cool--and, we hope, super sticky--new features. But that two-day offsite in Sonoma that I'd hoped would help with team building? Not gonna happen.
In other words, every choice these days is tinged with tradeoffs. Feeling the burn means we've had to reconsider every priority through the lens of how much of an impact any project or feature will have, how fast we can get there, and how much money that will require. And in the background, the clock ticks away. As one of our engineers has noted, every week that goes by is 2 percent of the year. That's a nontrivial unit of time, and it's something we want everyone in the company to think about every Monday and every Friday. In other words, feeling the burn isn't just my job--it's everybody's job.
It's going to be quite an interesting 13 months.