Are you default dead or alive?

Optimism bias, scientifically documented in psychological and neuroscientific research, is a cognitive predisposition that leads humans to believe they’ll more likely experience positive events in the future instead of negative ones. It influences our expectations, decision-making and risk-assessment.

To be clear, a heavy dose of optimism is a good thing. And probably even an essential thing for startup CEOs. It’s what powers you and is likely one of the reasons you opted into your company building journey in the first place while so many of your peers took far less risky paths. However, there are certain times you have to suspend your optimism and actively fight that bias. Managing your runway and cash-on-hand is one of those topics and it’s the basis for the “default alive or default dead” concept coined by Paul Graham. In fact, Paul notes that 50% of the YC founders he speaks with don’t know even know if they are “default dead” or “default alive,” further highlighting the optimism bias ever-present in entrepreneurs.

• Default alive mean you’ll reach profitability without the need for additional cash if you assume your expenses stay the same as today and your growth rate stays the same as today.

• Default dead means you won’t reach profitability and you’ll be dead without additional cash if you assume your expenses stay the same as today and your growth rate stays the same as today.

Use this calculator to quickly assess your dead or alive status.

Track your default dead or alive status continually.

If you’re default dead today, you have to raise again or fundamentally change the trajectory of your company to reach profitability. And if you don’t have the metrics to raise again, then even bigger changes are necessary. Before you reach default alive status your focus needs to be singular as your company depends on it.

If you’re default alive today (with some cushion!), then you can probably afford to take some more calculated risks that might pay off big.

Resources

Default Alive or Default Dead?

paulgraham.com

growth.tlb.org

This tool calculates how much funding your startup needs. Assuming your expenses are constant and your revenue is growing, it shows when you'll reach profitability and how much capital you'll burn through before then. Once you're profitable, you control your destiny: you can raise more to grow faster if you want.

growth.tlb.org

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