🎯 Goal: Manage cash flow through two survival concepts — runway (months you survive) and burn (money burned per month); tell fixed vs variable costs apart and grasp a few core processes so quality doesn’t depend on one person’s memory.
Startups don’t die from running out of ideas — they usually die from running out of cash. Two numbers to memorize: Burn = net money burned each month (money out minus money in), and Runway = months you survive at that burn = Cash ÷ Burn. Alongside, distinguish fixed costs (rent, salaries — paid whether you sell or not) from variable costs (change with each order). And a working business needs a few clear core processes so quality holds as orders rise and doesn’t depend on one person’s memory.
Lesson content
🎯
Runway tells you how long you have to reach break-even or raise again. Simple example: 600 million in cash, burning a net 50 million a month → runway = 600 ÷ 50 = 12 months. When runway is short (under ~6 months), the founder must act early: raise revenue, cut burn, or fundraise — delay is "clinical death" because raising and maneuvering both take time. Update runway every month, since it shifts constantly with income and spending.
🧭
Three steps to manage cash flow: 1) Compute net burn = total monthly spend − total monthly income. If income > spend you’re profitable (negative burn) — precious. 2) Compute runway = current cash ÷ burn. This is your "countdown clock". 3) Split costs into fixed (salaries, rent — paid even when idle) and variable (cost of goods, shipping — per order). To extend runway fastest, usually cut non-essential fixed costs first, since they drain money steadily regardless of sales.
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TOOL — Runway & burn table. Fill in cash and burn to get months alive — update monthly.
Scenario
Cash
Burn/month
Runway
Now
600M
50M
12 months
If you cut fixed costs
600M
40M
15 months
If you hire more & spend hard
600M
100M
6 months
Same cash, just cutting burn by 10M/month adds 3 months of life — the power of cutting the right fixed costs.
🌏
Case study — a Vietnamese e-commerce shop & core processes (step by step): 1) Fixed costs: staff salaries, warehouse rent — paid steadily whether you sell or not. 2) Variable costs: cost of goods, packaging, per-order shipping. 3) Understanding both lets you compute profit per order and how many orders to break even. 4) As orders multiply, Coolmate or Ecomobi must standardize core processes (order handling, returns, customer care) so quality doesn’t slip and doesn’t depend on one person’s memory — a new hire can read the process and do it right away.
⚠️
4 cash-flow & operations traps: • Not knowing your runway: panicking only when cash is nearly gone is too late. • Confusing revenue with cash: selling a lot while customers owe/haven’t paid can still kill you via a cash crunch. • Cutting the wrong cost: cutting variables by halting sales kills revenue too; cut non-essential fixed costs first. • Operations living in one head: with no written process, if that person leaves the whole system breaks.
✅
Cash-flow & process checklist: ① Do I know my net burn and current runway (updated this month)? ② If runway is under 6 months, do I have a plan to raise revenue/cut burn/fundraise? ③ Have I clearly split fixed vs variable costs? ④ Can I compute profit per order and the break-even point? ⑤ Are core processes written down so a new hire can do them without re-asking?
Practice exercise
🔬 APPLIED EXERCISE: Suppose your project has 300 million in cash and burns a net 25 million a month. Compute the runway. Then list 3 fixed and 3 variable costs, and name one way to cut burn to extend runway by at least 3 months, and recompute the new runway.
Worked template: FILLED EXAMPLE: 300 ÷ 25 = 12 months runway. Fixed: office rent, salaries, software. Variable: cost of goods, shipping, payment fees. Cut burn: drop the office, go remote → burn 20M → runway = 300 ÷ 20 = 15 months (3 extra months without fundraising).
Quick quiz
1. How is runway (months you can survive) calculated?
→ Cash ÷ Burn per month
Runway = Cash ÷ Burn per month — months you survive at the current burn rate.
2. Which is an example of a FIXED cost?
→ Rent and salaries — paid whether you sell or not
Fixed costs (rent, salaries) are paid whether you sell or not; unlike variable costs that move per order.
3. When runway drops below 6 months, what should a WISE founder do?
→ Act early: raise revenue, cut burn, or fundraise
Under 6 months of runway, a wise founder acts early: raise revenue, cut burn, or fundraise.
4. Why standardize "core processes" when orders surge?
→ So quality doesn’t slip and doesn’t depend on one person’s memory
Standardizing core processes holds quality as orders rise and avoids depending on one person’s memory.
5. Why is "confusing revenue with cash" dangerous?
→ Because selling a lot while customers haven’t paid can still cause a cash crunch and "death"
Confusing revenue with cash is dangerous: selling a lot while customers haven’t paid can still cause a cash crunch.
6. With the same 600 million cash, cutting burn from 50 to 40 million/month changes runway how?
→ From 12 to 15 months — 3 extra months of life
Cutting burn by even 10 million/month (the right fixed costs) already extends runway by several months.
Advanced
A deeper framework
At an advanced level, runway isn’t a static number but a moving clock: every action (hiring, discounting, fundraising) shifts it. Good founders keep a projection table of scenarios — "if we cut X" or "if we hire Y", what does runway become — to decide before cash runs out, not after.
The key is splitting fixed vs variable: fixed costs drain money steadily regardless of sales, so cutting them (an expensive office, non-essential recurring items) lowers burn immediately and extends runway. Cutting variables by halting sales kills revenue — the wrong move. Meanwhile, standardizing core processes keeps per-order variable cost stable as you scale.
How runway shifts with each action
Cash 800M, burn 100M/month, no revenue
Runway = 800 ÷ 100 = 8 months
Cut fixed cost 20M → burn 80M
Runway = 800 ÷ 80 = 10 months
Raise revenue 30M → net burn 50M
Runway = 800 ÷ 50 = 16 months
Hire more, burn rises to 130M
Runway ≈ 6 months — risky with no revenue
Same cash, each income/spend decision shifts runway by months. Project before acting; don’t wait to run dry.
Common trap: Waiting for sales to "recover on their own" when runway is just 5 months: each month of waiting burns cash, and raising/maneuvering both take time. Hesitation drains cash faster than any external shock.
Advanced questions
1. A company has 800 million in cash, burns a net 100 million/month, no revenue yet. How many months of runway remain?
→ 8 months
Runway = Cash ÷ Burn = 800 ÷ 100 = 8 months. With 8 months and no revenue, the founder should start raising revenue or prepare to fundraise now, not wait until it’s dry.
2. Sales are falling and runway is just 5 months. Cutting which cost most surely and quickly EXTENDS runway?
→ Cut a big fixed cost (e.g., an expensive office) since it’s paid whether you sell or not
Fixed costs are paid regardless of sales, so cutting them (office, non-essential recurring items) lowers burn immediately and extends runway. Stopping selling to cut variables kills revenue; waiting drains cash faster.
3. Why should runway be seen as a "moving clock" with multi-scenario projections?
→ Because each income/spend action shifts it, so you must decide before cash runs out, not after
Runway shifts with every decision (hire, cut, fundraise). Projecting scenarios lets a founder act early and correctly, instead of reacting late when cash is nearly gone.
🎯 Real-life mission
REAL-LIFE MISSION: Build a runway & burn table for your project (real or assumed): note cash and burn/month, compute runway = cash ÷ burn. List 3 fixed and 3 variable costs. Then set one concrete burn-cut action and recompute the new runway — aim to extend it by at least 3 months.