Anyone who has ever taken a flight knows that there are certain “critical” moments when the seat belt lights come on and passengers hold on tightly to their seats. The first of these is takeoff. Before the maneuver begins, flight attendants point out the safety instructions and the more skittish travelers make sure that there is no fault in the aircraft. However, no one notices the element that really makes it possible for the plane to take off and the passengers to raise their heads in relief: the runway.
Whether the aircraft can reach the necessary speed to take off depends, above all, on the length of the runway. Something similar to what happens in the world of aviation happens in the world of startups. To get your business off the ground, it is essential to have a good runway. So much so that the second most frequent reason why startups fail (29% of all cases) is to run out of runway.
The perfect runway
It is essential for the entrepreneur to know their runway when boarding in a project. The formula to calculate it is very simple. Firstly, the monthly net cash burn is determined; it means resting the foreseen monthly gross income to the expenses. The second step is dividing the available amount between the net cash burn, and the runway is the result.
And what is the optimal runway? Experts generally agree that it should be about 18 months. The first 12-15 months would be used for the company to “pick up speed”. The rest would be used to “take off” to the next level through a new round of financing. However, not all airplanes and not all startups are the same, and the optimal length of the optimal runway will depend on the characteristics of the business. For example, just as larger airplanes need longer runways, established companies seeking funding to expand tend to require larger runways to achieve their goals.
Higher or lower, it is essential for the entrepreneur to get an optimal runway. One that is too short carries a high risk of failure. On the other hand, an excessive financing round can lead to expectations that are too high and difficult to meet and will make the project less attractive to potential investors in the future.
What if the necessary financing is not obtained to have an optimal runway? Since the runway is the result of dividing the available capital by the net cash burn, there is another way to lengthen it: reduce the net cash burn. There are multiple ways to reduce costs for a start-up business. Some of them are using shared office space, expanding the staff with interns or automating the work as much as possible.
Finally, when determining the runway, it is important to consider that the forecasts are not always met, and some unexpected events can appear in the process. An optimal runway should give the startup a margin to work in difficult situations. After getting the runway needed for your startup, it can takeoff and fly high.