14/02/2011 18:57

blog.asmartbear.com
Jason

Build your own Startup Death Clock

A
few months ago I created a fun device at email appeared with a focused list of “must-haves”
WPEngine to focus everyone’s attention the before release (with a few items omitted from the
most important thing. previous “must-have” list).

Sometimes fear is a good motivator. In this case, Yeah, it works.  Try it!
fear takes the form of a tiny spreadsheet:
Tracking Progress

Of course as you improve your profitability — hope-

I know it’s looks silly to name the very day that
we run out of money — why not include the hour
and minute too? Clearly it’d be more accurate to
say “sometime in Q1 2011.”
fully through more revenue but possibly through
lower expenses — this date will change. Tracking
that change over time is an easily-digestible demons-
tration of progress, and/or acceleration of progress.
Here’s our actual data:

But the goal here isn’t accuracy, it’s motivation and

focus. Nothing drives correct thinking about getting
to profitability like facing your own demise. No
hedging, no estimating, no complex Profit & Loss
projections, just a date.
Click here to send your feedback

Confronted by an ultimatum, your thoughts crysta-

lize. Maybe some of those things on your to-do list
for this week aren’t as important as you thought.
Maybe you could get v1.0 out the door faster. Maybe
you should be spending your time getting revenue
instead of ruminating on the philosophy of startups
with strangers in the comment section of some blog.
(Err, except for this blog of course!)
[UPDATE: @rjrodger created an awesome, easy tool
joliprint

It’s easy to see that we’re replacing our burn to some
extent, with a notable down-spike when we make
a new investment that eats cash. It’s a particularly
nice way to visualize just how big of an investment
we made, and how subsequent income replaces it

for this at http://startupdeathclock.com/] (or doesn’t).

So did it work?
Printed with

Four minutes after emailing this internally someone

responded with a way for us to launch a week ear-
lier than planned. Three minutes after that another

http://blog.asmartbear.com/death-clock.html

Page 1

blog.asmartbear.com
Build your own Startup Death Clock
Even better: Tracking your break-even
date
Tracking “death” is good motivation, but it’s so
negative! If you actually have revenue — and it’s
growing, and growing faster than expenses — there’s
another more positive and more useful way to plot
your progress: Your anticipated break-even date.
Here’s how we generate this date for WPEngine. First
we track our expenses measured daily as “monthly
accural revenue for past 30 days.” Put another way,
if 100% of our expenses for this month (salaries,
servers, bandwidth, credit cards) were paid on a
single day, how much would it be?
Second we track the same concept but with revenue.
Our customers pay us monthly, but everyone is on
a different day of the month (specifically, 15 days
after they signed up, when their trial expired).
The result looks like this (dollars intentionally omit-
ted… there’s a limit to transparency!):
Click here to send your feedback
joliprint
We can see that revenue is catching up with ex-
penses, so how do we project when that date will be?
The idea is to  approximate  both of these curves
Printed with
with straight lines and see where they’d intersect.
The simplest linear estimation is to just draw a line
between the first and last point in the window and
14/02/2011 18:57
project from there, but this products erratic results
due to the normal bumps and dips in the graphs. So
it turns out you need to use least-squares regression
to generate approximation lines that are relatively
immune to minor undulations. Determining the x-
value for where the two lines intersect is as easy as
setting the linear equations equal and solving for x.
(For those of you actually following along with the
math, remember that what you’ve just computed is
the number of days from the beginning of the data
window that the two lines intersect. I also convert
that into an actual date, e.g. March 14th, 2011, not
a relative date, e.g. 127 days from “now.”)
The result is worth the effort; here’s our projected
break-even date over time:
When the date is moving out it means we’re being
less efficient (either at expenses or revenues or
both), and the same in reverse. Recently it’s stabi-
lized which is a good sign that we’re starting to lock
in our process, and with the break-even date much
closer than our running-out-of-money date, we’re
confident we won’t run out of money.
And perhaps most importantly of all, as soon as
anything changes for the worse, we see it. No
surprises three months later when suddenly we
realize we don’t have enough money to keep going.
http://blog.asmartbear.com/death-clock.html
Page 2
 14/02/2011 18:57
blog.asmartbear.com

Build your own Startup Death Clock

It ends

As you approach cash-flow break-even, your “run

out of money” date accelerates into the future. As
you blow past that magical moment, your business
can sustain itself indefinitely without further cash
investment, and the date becomes infinite.

That’s the end of the chart. Congratulations, now

there’s only 47 other metrics you need to be tracking.

Oh well, we should all be so lucky.

Let’s compare notes

What other simple, motivating metrics can you

use early on in your startup? What’s your death-
day? Join the conversation in the comment section.
Click here to send your feedback
joliprint
Printed with

http://blog.asmartbear.com/death-clock.html

Page 3