When I joined The Food Corridor, the concept of financial runway was well known to me from my consulting days. You figure out your monthly expenses, your savings, and any income you have coming in. Divide your savings (or at least the amount you want to spend) by the expenses less the income, and you get the amount of time available to work on the startup before you run out of money.
You definitely want to pad this a bit, because if you run out of money, you’ll need some time to find another source of income. You can also pad this with debt, selling other assets, part time work, investment, etc. Heck, maybe the startup will even make some money too.
But the goal is to have an idea of how long you can go before you have to call it quits for financial reasons. Then you can see if you think you can build the company in that amount of time. (Hint, it’s going to take longer than you think to build the company.)
Emotional runway is another key aspect of surviving a startup. Startups are full of a lot of stress. Some examples:
- Making decisions on limited data
- Dealing with a product that is broken because of the speed at which you built it
- Screwing up and apologizing to customers for said screwup
- Dealing with financial uncertainty
- Limited or nonexistent support structure
- Trying to figure out how to build a company
- Personnel conflicts
- Missing family time because of work
- Lack of vacation/benefits
- And, of course, the possibility of running out of money
All of the above make it tough to ‘tough out’ a startup. These are all costs that you will have to bear. Just like you only have a certain amount of savings to spend down, you also only have a certain amount of emotional wealth to spend. (There are times when a startup will deliver emotional wealth too.)
One of the hardest parts of the current startup for me is keeping an eye on my emotional runway. Taking some time off, celebrating successes, being open about the stresses with co-founders and family, and just being aware of what puts “money” into the emotional piggy bank and what takes it out are all ways I’ve dealt with this.