Tips for Managing Net Burn Rate

Operator Series - "I'm losing sleep over burn" I've built 3 companies (sold 2) - and I think burn rate anxiety isn't talked about enough If you’re pre-profit and spending VC money - you have a clock in the back of your head always ticking. "11 months left..." "10 months left..." "Our burn 2x'ed last month..." "We only have 8 months left" No matter how much you've raised - you're constantly thinking: - How much runway do I have left? - Can I raise another round before dead-day? - Do I have enough traction to raise? Will investors even entertain me? - Should I push my sales team harder? Every founder has this internal monologue, especially when it comes time for monthly investor updates, and it doesn't go away until you hit profitability with a nice cushion. Over the years, I've realized the anxiety comes from the lack of a plan + information lag (i.e, how often you check burn). Some mental models to help you: 1/ Runway → Track a simple weekly KPI, not quarterly. - Refresh the burn model every week to get a pulse check. If the number slips, talk about why while it’s still fixable. 2/ Map burn to milestones, not months. - Cash should buy progress, not time. For example: “Hit $1M ARR with ≤$150 k monthly burn.” If spend drifts but milestones don’t move, we course-correct immediately. 3/ Grade every expense: compounding or consumption. - Compounding = hires or tools that unlock future revenue, and have a +ve ROI - Consumption = nice-to-haves that die at month-end & have -ve ROI - Optimize for 'compounding' 4/ Treat the next fundraise as Plan B, not Plan A. - There are three paths: break-even, profitability, or raising more. - 1 & 2 are the easiest to directly control - 3 has too many 'second-order' variables for you to bet the farm on. Hope this helps! If you're going through burn anxiety and would like to air out anything, DM me! Always happy to chat.

Managing burn rate is the most critical part of building a startup. We coined a new model at Vert which has enabled us to significantly extending our runway, we’re calling it the decentralized asset medium business. One of the early key levers we pulled on was building a team of independent contractors with the intent to convert to full time if interested. Everyone on our team is focused on lifestyle design. They have their own way of identifying how business/career integrates into their life. Including me. My responsibility has been to understand each individuals desires and make sure it’s the right fit for them and the business. 7 months in, it’s working well so far. We came out of stealth mode in June but began burning cash in March. Our first capital injection was modeled to create the brand, develop our tech, start building revenue and launch our platform. Platform launch is behind schedule but we’ve executed on everything else. Our first round of capital got us to the projected date even though the revenue, expenses, etc were off from initial forecast. I credit this to hyper focusing on three things: 1) Cash Preservation I’ve watched our monthly expenses and managed our budget like a hawk since day 1. If T&E was heavy one month then we pulled back on it or adjusted where necessary the following. 2) Delivering Profitable Revenue I hit the streets hard putting boots on ground from February to September of this year. Didn’t focus on monthly revenue but rather getting in front of as many people in as many markets as I could having the confidence that the lagging indicator (revenue) would follow. 3) Embracing The Chaos This has been the hardest one for me but I’ve done way better with it this time around. That said, my gut also realized it was time to shift focus towards minimal viable process with my team in October and we’ve done just that. Pretty stoked with the progress we’ve made in a short period of time. Back to revenue. We have three run rate milestones established. We already hit our first in Sept/Oct and the third gets us to cash flow positive. My learnings from scaling multiple packaging manufacturing startups from 2017-2021 have allowed me to look at things through a new lens. When expectations are managed properly and the business model allows I believe bringing in fractional resources in the early days of a startup is a great approach to helping your cash go farther. The game I am currently playing is getting Vert to cash flow positive within 50% of our initially projected capital requirements. I’ll report back in H1 2024 on how we are tracking with that. My question for those building startups, are you thinking outside of the box when it comes to preserving cash? What can you do to extend your resources and burn runway? Love to hear others thoughts on this and if you have questions, feel free to drop those in the comments too 🫡

D2C Founders, keep your reporting simple if you’re under $10mil in revenue. This is all you need to know: 1) How much does each new customer cost to acquire -> Blended CAC 2) When do you recoup this cost -> CAC Payback Period 3) When and how many customers return -> Repeat Purchase Rate and Days Between Orders 1 and 2 4) How much profit contribution do you earn from each order / customer / product / category -> LTV 5) What's the return on your marketing spend -> ROMI or MER 6) How quickly does your inventory turn -> Inventory Sell-Through Rate 7) How many days of cash runway do you have -> Cash Runway 8) What revenue and cash flow do you project for the next 90-120 days -> Cash Burn Rate 9) When and how much capital could you need if projections didn’t happen -> Scenario Analysis 10) How many days of product overstock do you carry -> Inventory Overstock 11) What’s the dynamic compared to last year or previous period -> These 11 questions can be answered by a simple report. Control your OpEx and analyze it in detail too. No heavy tech stack. No serious time effort. No crazy financial models. Other metrics are noise. Simple is always the way. P.S. if you need help with understanding or actioning your numbers, DM me. #ecommerce #founders