Runway in startup terms refers to the amount of time a startup has left before spending all the money they raised.
Net burn rate, as defined here, is crucial for calculating the runway. For example, if a startup has £100.000 in their bank account, and their net burn rate is £10.000, their runway is 10 months. The higher the burn rate, the shorter the runway.
In case the burn rate gets high, here are some necessary steps to keep the business running:
-Start generating money. Easier said than done, but sometimes gaining (or even losing) a client or two can make or break a business. Make generating more income your priority.
-Reduce your burn rate. Startups often, especially in the early stages, hire a lot of people. To reduce the burn rate founders resort to either laying off their employees or cutting their hours, or downsizing the offices space.
-Raise more money. Other than raising too much money, founders sometimes fall in the trap of raising too little. Raising more money will help your startup stay afloat.
As a founder, you need to ask yourself a couple of important questions such as:
-How much money does my startup need?
-How long will my money last?
-How do my decisions influence my runway?
-How can my startup be profitable?
Most seed stage startups are concerned with how long their runway should be. Eighteen months is considered the default time for many businesses as 12-15 months is enough time to launch a product, get some traction, and so on, and 3-6 months to raise Series A.
Here are some examples of online runway calculators:
Scale factor (https://scalefactor.com/tools/burn-rate-calculator/)
Runway calculator (https://www.runwaycalculator.com/)
To conclude, if you want your startup to take off, make sure to build a long enough runway.