Too often I see Startups trying to burn cash quickly to bring in revenues, meaning they have a limited runway vs an unlimited runway. More often than not, I see that these revenues come in short. Upon inspection, they often have not validated what I call Startup Fundamentals. However, to even achieve that in the first place, they first need what I call the unlimited runway;
Unlimited Runway is defined as the point where cash flows are breakeven
The importance or significance of validating the market, product, and monetisation is obvious usually in hindsight. Many Startups seem to skip these validations steps, which is what I consider part of Startup Fundamentals. Just like the fundamentals of flight are the drag, lift, thrust and weight, the fundamentals of a Startup taking off includes the market, product, and monetisation.
The importance of an Unlimited Runway is that it gives Startup founders room to breathe and recollect. Most Startups are in a mess because everything is new and needs to settle down. When cash flows are break even, Founders can take a break from fighting for survival and focus on re-balancing the business fundamentally. This gives the Startup a chance to prepare for growth, by validating their Marketing and/or Sales processes.
Our Partner (Noomi) always stresses that Startups should always know how much in Gross Margins they get out of every dollar put into Sales or Marketing efforts (LTV/CAC). I agree fully as Startups looking for growth funding need that to first get a better valuation (as they would already be growing faster if they did know), and second to fully convince Investors you know what you are doing. An unlimited runway gives you plenty of time to figure out a good enough LTV/CAC.
Breaking even can be done by Bootstrapping early on. Founders keep the majority of their equity because they are working for sweat equity with little salary, and Investors generally pump in cash and do less work (ideally mentoring often) for a minority stake in equity. We have observed that Founders who keep their burn rate low for at least the first year survives long enough to hit a breakthrough in growing traction and subsequently getting investments.
Business, after all, is a marathon and not a sprint. The last men standing are the ones that win the market.