Three-Option Burn Framework

A framework for managing high cash burn in startups, focusing on three key options for burn reduction while maintaining company control and growth.

The Burn Problem

• Company was burning $2.4M per month (July 2017)
• High burn creates two major issues:
  • Tactical: Running out of money for operations
  • Strategic: Loss of company/product control due to constant fundraising needs

Three Options for Reducing Burn

1. Layoffs

• Rejected because:
  • Team is fundamental to company success
  • Not fair to employees, business, or members
  • Would damage company culture and capabilities

2. Reduce Acquisition Spend

• Rejected because:
  • Speed is the primary leverage against larger competitors
  • Slowing growth means losing competitive advantage
  • Would sacrifice long-term success for short-term savings

3. Working Capital Optimization

• Chosen solution focusing on:
  • Balancing cash inflows and outflows
  • Creating positive cash balance
  • Maintaining control over product development

Working Capital Implementation

• Focus on two main levers:
  1. Increase lifetime value
     • Reduce merchant fees (30% app store vs 2.7% web)
     • Improve conversion rates
     • Enhance member retention
  2. Accelerate cash collection
     • Implement annual pricing ($100/year upfront vs monthly payments)
     • Explore financing structures for faster receivables
     • Optimize payment timing

Key Principles

• Cash position determines product control
• Working capital management is often overlooked in startup community
• Subscription businesses need to focus on both lifetime value and payment timing
• Strategic decisions should prioritize maintaining company control while enabling growth