…because some thoughts are worth remembering
Burn rate is a commonly used term in the startup community’s lexicon. It means how quickly you are spending your funding (e.g., $10K/mo). In early days of startup, there is usually no real incoming coming in, so your burn rate defines how many months you have left (until you need new investment).
The book The Lean Startup presents a different metric one can measure: how many “pivots” do you have left? Focusing on burn rate alone can narrow your attention to changes one can make at the operational level (e.g., can we outsource this task for cheaper? If we fire the assistant, is there a significant reduction in our burn rate?). If what and how you are approaching your business is the only option you have, and if you can’t get to the next funding event, thinking about reducing the burn rate doesn’t really capture the potential of the enterprise. But if there are many options you can try to change the direction, it is not only worth it to lengthen that runway by reducing the burn rate, but it might also help get to new funding or make the burn rate itself less relevant.
The author refers to these options to change the business as pivots. Just as in a heated discussion, pivots are tough for entrepreneurs because they tend to be passionate believers of their own ideas, and sometimes that firm belief can shut out other options. For the few who are self-aware enough to be open to changes, may have a hard time thinking of these options. The author laid out several types of pivots in generic terms that people can use to come up with their own options:
When I advise startups, or ask to comment on options to pursue for new initiatives, personal projects, etc., I find it useful to present the pivots with fewer categories organized in a way that perhaps evokes their corporate or personal value system, so these options do not all present themselves as equally valid options (because it will just make the decision making process that much longer to brainstorm for each pivot possibilities and then evaluate on basis of feasibility, economics, etc. Here’s another way to think of pivot options:
The last factor is more of a checksum for ideas from other categories, whether or how they can be in line with your vision. It is also a checksum for the team, as there may be new members on board since the inception and they may not share the original vision of the founders, The motivation may also have shifted over time.
Photo: From an exhibit at Aros, a modern art museum in Aarhus, Denmark