Paul Graham
Default alive or default dead
Run this number before anything else
Default Alive or Default Dead?, 2015
He asks founders one question first, and most of them cannot answer it. Why it comes before every other conversation.
What actually happened?
The first thing he asks a startup is are you default alive or default dead? The definition is hard-edged: assuming expenses stay constant and growth continues as it has been, do you reach profitability on the money you have left? If yes, default alive. If no, default dead. What surprised him is how many founders do not know which they are. It comes first because it sets the character of every other conversation: a default alive company can talk about ambition; a default dead one has a single agenda item, getting out of that state — and is usually still discussing hiring, assuming the next round will arrive.
You have to run it yourself, because nothing raises an alarm
A default dead company looks entirely normal from inside: the product ships, the team grows, there is money in the account. Death is scheduled months out on a calendar nobody turns to. The question brings that date forward to today — three numbers, ten minutes.
Put the current answer and the death date on this trajectory as page one of the monthly meeting. The existence of that page reorders everything after it.
Counting on the next round outsources your survival to a mood
He names the standard consolation: investor appetite swings with the market and your death date does not. The right move when default dead is not to fundraise harder but to move the two variables under your control — expenses and growth — until you are back on the living side.
A survival plan with raise a B round written into it has handed the switch to somebody else's fund cycle. Cut to within reach of break-even first; the negotiation even smells different.
The usual cause is hiring too early
His first-named cause of default dead is over-hiring — using growth needs people to raise the burn ahead of growth that then does not arrive. The remedy is counter-intuitive: early growth comes far more from founders making the product better than from headcount. People should be added when growth is dragging you into adding them.
Build the team and wait for the business bets a fixed cost on a forecast. Let the pain of growth force each new hire instead, and the company stays on the living side.
How do I use it today?
Where you are: things are running normally and you cannot say where the cash-flow threshold is.
Ask first: flat expenses, current growth — profitable before the money runs out? If the answer is no, today's agenda should be replaced entirely.
Where it goes wrong: using default alive as an excuse not to grow — safe and stationary. The question protects the floor; the ceiling still takes ambition.
Lines to keep
Are you default alive or default dead?
With expenses flat and growth as it is, do you reach profitability in time?
What surprises me is how many founders do not know the answer.
Same situation, other people are asking
This month is on me. I can't think about next year.There's money in the account and I don't know when it runs out.I can't pay it back and I haven't told anyone at home.Money fights are pushing us apart.Not enough money · all 10 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.