I’ve been doing this long enough now – 8 years on some boards, 100+ investments across two funds – to have seen every flavor of founder challenge at least 10 times. The VP Sales that isn’t working out. The product roadmap that’s six months behind. The competitor that just raised $50M and is undercutting you on price. The churn that ticked up two points last quarter.
And here’s what I’ve learned: you can hide from almost all of it. For a little while. Except — the burn rate.
Sometimes you need to hide. Sometimes it’s not ideal, but you give that new CRO another quarter before you admit to yourself the hire isn’t working. Sometimes you can push that difficult board conversation about slowing growth out 30 days while you figure out if it’s a blip or a trend. Sometimes you don’t tell the team about the competitive threat until you have a response plan.
That’s not being dishonest. That’s being a leader. You’re buying yourself time to understand the problem, test solutions, and avoid creating panic over something that might resolve itself.
But there’s one thing you absolutely cannot hide from: your burn rate.
The Math Doesn’t Care About Your Story
I’m looking at a company right now. Great founder. Real product. Growing AI revenue at 72% YoY in their new product line. But they’re burning $1.8M/month with $27M in the bank and a $20M cash floor they need to maintain.
Do the math: that’s 4 months of real runway, not the “15 months” they’re telling themselves.
The founder keeps talking about how they’re “on track to breakeven by end of 2026.” That’s 13 months away. To get there from a $1.8M monthly burn, they’d need to reduce burn by roughly $120K every single month for over a year.
That has never happened in the history of SaaS without layoffs.
But the plan assumes it will. The board deck shows a gentle glide path down to breakeven. The forecast has revenue accelerating and expenses flattering. There’s a slide about “operating leverage” and “efficiency gains.”
It’s all fiction.
Why Founders Lie to Themselves About Burn
Here’s what happens: You see the new product starting to work. You see the adoption curve bending up. You see the customer testimonials and the usage metrics and the renewal rates. You think “we’re so close – we just need six more months and this thing is going to explode.”
So you convince yourself you have six months. You look at the cash balance and you do the math in the most optimistic way possible:
- We’ll collect that $500K in late renewals next month (they won’t all come in)
- We can push vendor payments out 30 days (you can’t, not repeatedly)
- That big deal will close and pre-pay annually (it won’t)
- We’ll hit our revenue targets and that’ll reduce burn (you won’t)
You’re not lying to your board. You’re lying to yourself first. And by the time you admit the truth, you’re out of options.
The Brutal Reality of Cutting Burn
Here’s what nobody tells you: cutting burn is violence.
You can’t reduce burn by $120K/month through “efficiency.” You can’t get there by “renegotiating contracts” or “optimizing cloud spend” or any of the other euphemisms that show up in board decks.
You get there by firing people. Usually 30-40% of your team.
And here’s the thing about layoffs: they don’t just reduce burn – they kill momentum. You cut the SDR team and your pipeline drops. You cut customer success and your churn spikes. You cut engineering and your product velocity craters.
The very thing you were hoping to buy six more months for – that new product that’s starting to work – is the thing you just killed by waiting too long to cut burn.
What You Should Do Instead
If you’re a founder reading this and you’re starting to sweat, here’s my advice:
1. Do the real math on your runway
Take your current cash balance. Subtract whatever “floor” you’ve committed to maintaining (whether that’s $10M, $20M, or $0). Divide by your actual trailing 3-month average burn – not your forecast, your actual spend.
That’s your real runway. If it’s less than 12 months, you’re in the danger zone.
2. Add 6 months to whatever you think you need
Everyone – and I mean everyone – underestimates how long it takes to get to breakeven or raise the next round. If you think you need 9 months of runway, you need 15. If you think you need 12, you need 18.
The market changes. Deals slip. Customers churn. Shit happens. You need buffer.
3. Cut early and cut deep, if cuts will be required
If you’re going to cut burn, do it once and do it brutally. Don’t do “salary cuts” or “hiring freezes” or other half-measures that destroy morale without fixing the problem.
Figure out what the business looks like at $500K/month burn (or whatever your target is). Build that org chart. Make the cuts. Get it over with.
The team will recover from one bad day much faster than they’ll recover from six months of creeping anxiety about “when’s the next round of cuts?”
4. Default alive or default dead – pick one
This is Paul Graham’s best advice and nobody follows it. You’re either on a path to profitability with your current cash (default alive) or you’re not (default dead).
If you’re default dead, you need to either raise money NOW or make the cuts to get default alive NOW. There’s no middle ground. There’s no “we’ll see how Q3 goes.”
The minute you’re default dead without a term sheet in hand, you’re in crisis mode. Act like it.
The One Exception (And It’s Rare)
The only time you can push burn higher than your runway supports is when you have extreme confidence in a near-term funding round. And I mean extreme – like, you have a term sheet, you’ve done legal diligence, and you’re 30 days from wire.
Even then, I’ve seen deals fall apart. I’ve seen term sheets get pulled. I’ve seen market conditions change and suddenly that $30M Series B becomes a $15M bridge at a down round.
So even in the best case, you better have a Plan B that involves making those cuts anyway.
Why This Matters Right Now
We’re in a weird moment in B2B. AI is creating real tailwinds for some companies – new products that are working, usage that’s accelerating, customers that are genuinely excited. But the funding environment is still tight. Growth expectations are still high. And burn multiples still matter.
A lot of founders are looking at their AI product traction and thinking “we’re going to be fine – this is about to take off.” Maybe. But even if you’re right about the product, you might still run out of cash before the market catches up.
I’m watching companies with legitimately good products – 70%+ YoY growth in their new AI lines, real customer adoption, improving unit economics – run out of runway because they didn’t cut burn fast enough.
Don’t be that founder.
And Always, Always Use an L4M Model. In Addition To Whatever Else Your Finance and Ops Team Uses.
Finally, no matter what anyone in ops or finance claims, use an L4M model to run your business. One that just averages growth and burn for the last four months — and rolls that forward.
More on how to do that here. It’s simple, fast, and keeps everyone honest.
The Bottom Line
You can hide from a lot of things as a founder. You can buy yourself time on a bad hire. You can smooth over a lumpy quarter. You can avoid difficult conversations about strategy or competition or organizational issues.
But you cannot hide from your burn rate.
The cash balance is the most honest number in your business. It doesn’t care about your narrative. It doesn’t care about your growth trajectory. It doesn’t care about how close you are to product-market fit.
It just counts down. Every month. Every day.
And when it hits zero, the conversation ends.
So do the math. Be honest about your runway. And if the numbers don’t work, make the hard decisions now – not in six months when you’re out of options.
Your future self will thank you. And so will the team you’re able to keep because you didn’t wait until it was too late.
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