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Thursday, November 20, 2008

Follow up on funding and that runway





Runway Thinking: A Practical Guide to Startup Survival
by Phil Morle

Times like this, when funding is scarce and confidence is low, do bring one benefit. They force us to focus.
This year at Pollenizer we have had the privilege to work with 18 different startups (so far) and ‘focus’ has shone through as a single theme. Startup founders do understand the need for surgical focus, but doing it is hard.
The runway - a thinking tool for doing focus
To tackle this, I now begin my time at a new company defining the current end to the runway and what can be achieved as we race towards the end. I begin with this slide.







uploaded with plasq’s Skitch!

I have overlayed a diagram describing the stages of a real take off so ignore all the “V” stuff …
We can over-use the phrase ‘runway’ when we plan our strategies, but I have found it an incredibly useful tool for planning because it is difficult to ignore some common, important milestones for the business.
We need to work through it from right to left because the end of the runway defines the scope.
D - This is the end of the runway and you don’t want to get there. It is a time in the future when you run out of money. If you haven’t taken off, you’re dead.
Money in bank / monthly burn = how long until we are dead.
Let’s say this is 18 months away.
Now work back…
C - This is the point you go for your next round of funding if you need it. Notice that the plane is already in the air. Your startup is making money and/or acquiring users. The stats show that this is the natural vector of the business. Consistent and directed. Not variable or faked by mentions on Techcrunch or an expensive ad campaign. Investors need to see momentum - that the plane is taking off. It might not make it across the Pacific, but it is flying non-the-less.
Let’s say this is 15 months away so we don’t leave it til the last minute and need to spend time planning redundancies and canceling the stationary order.
Now work back…
B - This is the point where you have completed a feature configuration that will fuel your business and one day demonstrate momentum. This milestone is rarely defined. Don’t be tempted to sneak in some brand new features after this date. Refine what you have.
Here’s a growth chart from FriendFeed that looks rather like our runway illustration:

Uploaded with plasq’s Skitch!

I snipped it from an excellent presentation by Brett Taylor, one of the founders of FriendFeed. It shows that even well funded startups with a proven, awesome team take time to work the model.
In a startup its easy to delude oursleves that a brand new feature will be the catalyst for adoption but I have never seen that actually happen.
You need to allow the time between B and C to refine the flow, improve registration, look for fractures in user experience, listen to users, refine viral loops and learn how to monetise. How long do you need to do this? The answer is unlikely to be less than 6 months and is probably more than a year.
Let’s say this is 8 months away. So you have 8 months to plan, design and build the core features.
A - Which brings us to now. What can you build in 8 months and demonstrate it is working a few months later? It is likely that a great many world-changing features (that you love!) will go on the shelf to review another day. Checkout Venturehacks for some ideas on optimising this initial feature set:
venturehacks “Startups need to develop an initial product with the least number of features that can sell to the most people.” http://venturehacks.com/articles/lean-startups#comment-5598
Every feature you choose to add, introduces another dimension of unpredicatability which can make the delivery pipeline almost impossible to control.If this happens, you move past a pont where it will be difficult to prove your business before time runs out.
These limitations are not the conditions for boring products. This is the fertile ground upon which startups build their homes. It is how startups beat established competitors because necessity forces them to focus on offering highly focussed products to users.
The runway provides a powerful metaphor to drive hard decisions.
Update: Silicon Valley VC, John Doerr, thinks your runway needs to be 18 months long. This, and nine other survival tips from him here.
Slainte
Gordon

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