Starting or growing – it’s all about the runway
Cartoon by Tom Fishburne
This week various groups and organizations around Kansas City are kicking off Kansas City Entrepreneurship Week (there’s a Global week is in November). The activities are part of the growing initiative to make Kansas City the nation’s most entrepreneurial city (part of the Big 5 initiatives announced by the Kansas City Chamber last year).
As a side note, whether you’re a start-up company, an existing company who needs to keep changing and adapting to keep up with the times or a dreamer working in the corporate world and anxious to find a way out of your cubicle, this focus and growth of Entrepreneurial resources is a great thing for the Kansas City area.
Presenting the Runway
One of the things going on is a Demo / Pitch session that will highlight 13 local startups – including some really interesting ideas. A big part of what these entrepreneurs and companies will pitch will be an explanation of their runway. If you haven’t heard the terminology, the runway is the amount of time (based on planned resource burn) a company has to get their idea / product off the ground to where it’s self sustaining. Once you run out of money / time, you’ve hit the end of the runway…and you better be off the ground!
This concept of the runway is a simple idea…but it’s amazing how often it gets lost in the crazy workload that goes along with starting something and making things happen every day. Running out of money should never be a surprise, but it happens all the time! Sometimes it’s because there wasn’t a realistic plan to begin with and in other cases the plan might be okay but some of the assumptions aren’t working out.
Once you’re out of runway you’re faced with a set of serious questions: Do you keep trying or do you pull the plug? If you keep trying, do you have enough resources on your own or do you have to get more money from somewhere else? If you have to get more money, where will it come from? Existing investors (including the business owners)? Credit cards? Bank loans (probably a stretch unless you’re a pretty well funded existing business)? Do you need to fundamentally change what you’re doing (pivot)? Or do you just need more time?
All of that leads to a few things you have to keep in mind when you’re thinking about your runway:
1. Be realistic in terms of revenue growth assumptions.
If you only have enough funding for a few of months of runway…and you need your revenue to double every month for 6 straight months just to hit break-even, you better go back to the drawing board.
2. Make sure you’re actually tracking revenue and expenses.
It sounds silly, but I talk to business owners every day who don’t know where they are financially…and if you don’t have that visibility you are going to crash at some point.
3. Be really clear on assumptions you’re making as you put together your plan.
Then make sure you and your team are moving Heaven and Earth to make sure those assumptions continue to be valid…or re-plan if you confirm that they’re not valid!
4. Continue to look at all options for your runway plan.
There are 2 sides to the runway equation – cost and revenue. If you’re finding it difficult to reach the revenue side, can you cut costs to extend your runway?
Are you rolling something new out? Have you presented your runway plan to anyone? The best plans are those that have been challenged from a lot of different angles – if you’re not doing that, then you may be in trouble.
If you’d like some additional great ideas (not mine, but my clients) on what it takes to succeed at starting up – check out 25 Great Pieces of Advice for Start-ups!
I’d love to hear your thoughts on the importance of runways and what else is important for start-ups. Share your thoughts in the comments below!