A startup is default alive if, with costs staying where they are and revenue growing at its current rate, it reaches profitability before the money runs out. If it doesn't, it's default dead: without a change (raising money, cutting costs or growing faster) it will run out of cash.
Paul Graham popularised the idea in a 2015 essay. It's useful because it turns two numbers founders track separately, runway and growth, into one yes-or-no question.
How to check if you're default alive
You need four numbers:
- Cash in the bank
- Monthly revenue
- Monthly expenses
- Monthly revenue growth rate (average of the last three to six months)
Then, month by month: subtract this month's burn from cash, grow revenue by the growth rate, and repeat. If revenue overtakes expenses before cash hits zero, you're default alive.
A worked example
You have $200,000 in the bank, $10,000 monthly revenue growing 10% a month, and $20,000 monthly expenses.
- Month 1: burn $10,000, cash left $190,000
- Month 4: revenue about $13,300, burn $6,700
- Month 8: revenue about $19,500, burn $500
- Month 9: revenue about $21,400, profitable, with roughly $155,000 still in the bank
Default alive, comfortably. Now change one number: growth of 1.5% a month instead of 10%. Revenue only reaches about $11,800 by month 12, the gap to expenses closes slowly, and the cash runs out around month 26, long before revenue would catch up in month 48. Default dead.
At 2% a month it's a coin toss: the cash and the gap run out at almost exactly the same time, around month 36. Growth rate matters more than almost anything else in this calculation.
Why it's a better question than "how much runway?"
Runway alone treats revenue as frozen. A company with 8 months of runway and fast growth can be in a much better position than one with 20 months and no growth. Default alive builds growth in.
It also tells you what kind of problem you have:
- Default alive: you can choose to spend more to grow faster, knowing the base is safe.
- Default dead, close: small changes (a price rise, one fewer hire) can flip it.
- Default dead, far: you need to raise money or make a big change, and you need to start now.
What to do if you're default dead
- Check the inputs. Are you using real growth from the last few months, not the growth you hope for?
- Find the cheapest flip. Work out how much you'd need to cut, or how much faster you'd need to grow, to become default alive. Often it's less than you'd think.
- Change prices before cutting people. A price rise lowers net burn and raises growth at the same time. See how to raise prices without losing customers.
- Cut in the right order. See how to reduce burn rate.
- If you're raising, start early. Fundraising while default dead with six months left is a much weaker position than with twelve.
The trap: assuming you'll raise money
The most common way founders fool themselves is treating the next funding round as guaranteed. Graham's point was exactly this: many founders who were default dead didn't know it, because they assumed investors would keep funding them. Run the calculation as if no more money is coming. If you're alive anyway, fundraising becomes optional, which is also the best position to fundraise from.
Check it monthly
Growth rates change, so recalculate every month with real numbers. The moment the answer flips from alive to dead is the moment to act, not the moment cash gets low.