Default alive or default dead

Runway tells you when the cash runs out if nothing changes. Default aliveEquity & financingDefault aliveWhether, with expenses held where they are and revenue growing at its recent rate, a company reaches profitability on the cash it already has. If not, it is default dead and its runway ends in a raise asks the better question: if costs stay where they are and revenue keeps growing at its recent rate, does the company reach profit before the cash runs out? If yes, it's default alive. If no, it's default dead, and its runway ends in a fundraise it hasn't yet won.

Northwind, as it stands, is the easy case. September's revenue of $31,500 less cost of revenueStatementsCost of revenueThe direct costs of producing the goods or delivering the services sold in the period — the line gross profit is measured after and operating expenses left a profit of $1,747.40. It's profitable in month 0, so it's default alive before the test starts. Be careful, though: a profit isn't cash. September's operations still used $647.40, because customers owed money and stock was on the shelf. The alive test ignores working capitalLiquidity & working capitalWorking capitalWorking capital is a liquidity and working-capital metric, calculated as Current assets − Current liabilities.Current assets − Current liabilities on purpose, so it's a first screen, not a cash forecast.

The founders are weighing 2 hires, a salesperson and a warehouse lead, at $5,000 a month gross each. Fully loaded with the employer's payroll tax (7.6%, read off September's payroll), that's $10,765 a month. September's profit becomes a loss of $9,017.60. Is Northwind still alive? It depends entirely on growth.

"Runway is 4.3 months on the new burn, so the hires are safe for now."

Default dead at 5% growth: cash runs out in March 2027.
Alive at 10%. Hire when growth proves the faster rate.

Raising, worked on Northwind: how a raise changes runwayFinance · Lesson 7 of 8How a raise changes runwayHow does raising a SAFE change my startup's runway?A SAFE seen from the runway: more cash, the same burn, and Northwind turned from default dead to default alive at the growth it already has.8 min.