(adapted from this twitter thread)
One thing most people don’t realize about starting a small business, particularly in the context of something with low overhead and low fixed costs, like software or media: not-enough revenue is still money!
Say you have $16k and need $2k/mo to live on. That’s 8 months of runway.
Say that after 3 months, your business makes $1k/mo. Not sustainable yet, but now you have 10 months runway! ((16-2*3)/(2-1)=10)
Not-enough revenue is still real money! 🤑
Huh. “runway” is actually backwards metaphor for this thing, at least in a personal context (may be different with “moon or bust” startups, that aren’t making any money while burning up runway).
Real runway is fixed distance, & certain speed needed for takeoff, but faster you go the sooner you run out of runway! 🛫 All-or-nothing. It’s dangerous to be going very fast but not fast enough, because it means that
By contrast, as you get momentum going with a personal business, that actually buys you more time.
I supplemented myself with a couple of 1-on-1 coaching clients during the early phase when Complice was only making me $150-300/mo. But that $150-300/mo was still vital! I was living quite frugally (~$1000/mo) and it was a decent fraction of that.
Living frugally while directly growing your revenue is a whole different ballgame than living frugally while trying to save money, since the latter can end up reinforcing an ongoing scarcity thing in a different way. Keeping your expenses low in the early days doesn’t just decrease time til breakeven, it also dramatically affects the ratio between revenue & expenses:
(You can skip to the next section if you don’t want to think about numbers and just want to think about better metaphors.)
When I originally posted these ideas on twitter, independent researcher Andy Matuschak replied:
This resonates. I’ve been really surprised by the impact of Patreon, how it’s forced me to rethink my models of funding software development. I’m in the red, of course, but Patreon now covers half my monthly burn, which greatly extends my timeline, which enables yet more growth…
Mmm, yeah! And there’s a kind of nonlinear threshold thing, where as Revenue approaches Expenses, timeline goes to infinity. This is sort of obvious, but I want to point at the nonlinearity of the whole thing.
Given $1000/mo expenses, and $1000 capital, then…
Which is to say, doubling your timeline a second time only requires 50% more growth (0.5→0.75).
A third doubling then only requires (16% more growth (0.75→0.875).
Fourth doubling 7%, fifth doubling 3%. And meanwhile growth itself may be compounding. And by that point it’s very easy to tip over into infinite (or at least indefinite) runway, when revenue > expenses. This phase is better known as something like “sustainability”.
All of this requires of course that your expenses not simultaneously be growing, or that they grow much more slowly than your revenue.
Then of course the thing to look for is where the growth will generate some sort of limit. (Limits to Growth is a classic creature in the systems zoo described by (among others) Donella Meadows in her excellent book Thinking In Systems)
For instance, Complice revenue has been capped at ~$50k for a few years, modelled by this time-series equation (T is some unit of time).
Users(T+1) = Users(T) * Retention + Signups * Conversion
If R, S, and C are constant, the number of Users stabilizes at whatever size makes the total number of users who cancel their subscriptions each month be the same as the number of new users who subscribe.
I’m now trying to design a better metaphor than “runway”.
The core question is “what’s the amount of capital you have divided by how much of it you’re spending on net each month?” which naturally is measured in units of time.
“Bootstrapping” gets part of it though is also kinda sus as a working metaphor since literally pulling yourself up by your own bootstraps is impossible. The “bootstrapping” phrasing also doesn’t afford the question “how much runway do you have?” This is one of the first questions I ask anyone I’m talking to when orienting with them to some career decision that may involve not having a steady income for a period of time.
“Mana”, a game metaphor particularly from the MTG card game, captures some other elements. But doesn’t capture the natural running-out-ness of the resource, or afford the time-based question.
Huh—”slack” is kind of the thing, not with literal rope but in a systems sense.
Speaking of systems, I’m thinking about how slack in systems often takes the form of buffers. I suppose the thing we sometimes call runway is sort of your buffer from bankruptcy.
I’m honestly kinda tempted to just call this “runway”/”slack”/etc thing “upward spiral juice”. Upward spiral juice is fuel for upward spirals, and if used effectively generates more of itself.
Okay, now what is that? That’s a “seed”:
Plant, water, wait → more seed!
🌰🌱🚿⏳ → 🌰🌰🌰
“Seed capital” is a phrase. Maybe we can make it richer.
There are some concepts of “don’t eat your seedcorn” but ultimately if you’re starting a 1-person business then your own need to eat is actually a major thing you’ll need to invest your seed capital into!
So it seems like maybe the way to ask the question might be something like:
“how many months do you have to plant seeds before they need to start bearing fruit?”
But wait, no, this metaphor is still kind of confused, because it suggests a tradeoff between eating seedcorn and planting seedcorn, which is how seedcorn works but isn’t relevant to a business where the main expense is your own living expenses.
Hmm. Metaphor design is tough.
Part of the reason, I’m recognizing, that I like the runway question is that it allows you to sidestep the two sensitive questions “how much money do you have?” and “how much money do you spend?” and instead go straight to the relevant number: the size of bet someone might be able to make, by just dividing the first by the second.
Hm. As of Friday evening, I don’t feel satisfied with any of these metaphors, though it’s been a fun exploration. The main takeaway from this post is:
Not-enough revenue is still real money!
(I’ve set up a showtime for this post to go live in a couple days — we’ll see if I think of a better metaphor by then. If you’re reading this, probably not!)
Constantly consciously expanding the boundaries of thoughtspace and actionspace. Creator of Complice, a system for improvisationally & creatively staying in touch with what's most important to you, and taking action towards it.
Malcolm » 29 Nov 2022 »
Oooooh yeah, not a perfect fit, but the part where the further up you get the less gravity there is to escape feels relevant. Then the question would be “how much rocket fuel do you have?” but it doesn’t quite capture the sense of measuring money in units of months.
Vlad » 25 Apr 2021 »
A metaphor that seems relevant here is “escape velocity” (does not quite match what you’re looking for, but maybe one can come up with something starting from it 🙂 ). i.e. when your income >= expenses – you’ve achieved escape velocity (and can start accelerating on you way to Mars/stars 😛)