Founder default alive

Purpose

Replace vague optimism and panic with conservative cash math, dated decision triggers, and a credible path to survival or orderly action.

Give the founder a decision, the evidence behind it, the strongest contrary case, and the smallest executable next step. Do not produce generic encouragement or a long menu of tactics.

When to Trigger

Use this skill according to the frontmatter description. If the stated issue is a symptom of an earlier broken link, say so and route to founder-debugger or the owning retained skill.

Inputs Needed

• Cash available and restricted cash
• Monthly revenue by type and segment
• Gross margin and variable costs
• Gross burn, net burn, payroll, and fixed obligations
• Recent cohort-based revenue growth
• Hiring and signed spending commitments
• Receivables timing, taxes, debt, leases, severance, and shutdown obligations
• Fundraising status without counting unwired money
• Best, base, and downside assumptions

Ask only for missing inputs capable of changing the decision. For reversible actions, make assumptions explicit and propose a bounded test instead of blocking on perfect data.

Questions to Ask

• At constant expenses and conservative recent growth, when does revenue cover expenses?
• Does that date precede cash exhaustion with a safety buffer?
• Which revenue is recurring, collected, and high-margin?
• What costs are truly variable, cancellable, or contractually fixed?
• What happens if growth is half the plan and collections slip?
• What exact milestone makes financing materially more likely?
• When must Plan B start, not finish?
• What cuts preserve the core value loop?
• Are payroll, tax, severance, debt, and shutdown obligations protected?
• Which hopes have been incorrectly entered as facts?

Mental Models

• Default alive is a trajectory, not a cash balance.
• Runway is a deadline with decision lead time.
• Gross burn versus net burn.
• Contribution margin before breakeven.
• Financing is a contingent plan, never cash.
• The fatal pinch: default dead plus slow growth plus too little time.
• Hiring is a recurring commitment.
• Preserve leverage by acting early.

Use these models as competing lenses. Select the one that best explains the observed behavior, state what evidence would falsify it, and convert it into a decision rather than repeating it as a slogan.

YC Principles

• Know cash and runway exactly; denial is itself a company risk.
• Move from default dead through faster real revenue, lower costs, or both.
• Do not delay burn reduction while assuming investors or acquirers will rescue the company.
• Overhiring is a common cause of default death after fundraising.
• Protect employees, taxes, payroll, creditors, and orderly shutdown obligations.
• Act decisively while choices and negotiating leverage remain.

Paul Graham Principles

• Ask whether constant expenses and recent growth reach profitability before cash ends.
• Separate facts from hopes: 'default dead, counting on investors' is more honest than vague optimism.
• Write Plan B and the exact date it must begin.
• Ramen profitability can give founders time and negotiating freedom.
• Fix weak product appeal rather than hiring to manufacture growth.

Garry Tan Principles

• Use high agency to confront the math and change the trajectory early.
• Apply AI to sensitivity analysis, not to smooth over uncertain inputs.
• Treat people fairly and communicate clearly when cuts or shutdown become necessary.

Decision Frameworks

Default-alive model

1. Start with cash.
2. Project collected revenue using conservative cohort or contracted assumptions.
3. Project variable costs and gross margin.
4. Project payroll and committed operating expenses.
5. Calculate monthly net cash flow and ending cash.
6. Find breakeven month and minimum cash point.
7. Add downside scenarios and decision lead times.
8. Classify alive only if breakeven precedes exhaustion with adequate buffer.

Response ladder

1. More than 12 months: improve trajectory and define triggers before urgency.
2. 6–12 months: freeze speculative hiring, run base/downside plans, and act on the largest lever.
3. 3–6 months: centralize cash decisions, cut non-core spend, accelerate collected revenue, and start Plan B immediately.
4. Under 3 months: obtain qualified legal/financial advice, protect obligations, and evaluate financing, sale, wind-down, or shutdown without delay.

Spend test

1. Does the spend directly improve retained value, collected revenue, or a financing-critical proof point?
2. Is the mechanism already understood?
3. Is the commitment reversible?
4. Does the downside case preserve required runway?
5. Could founders or existing staff test it before hiring?

Step-by-Step Process

1. Reconcile cash to bank balances and liabilities.
2. Define collected recurring revenue and contribution margin.
3. Never silently substitute gross spend for net burn: net burn is cash out minus cash in. If the founder supplies only an ambiguous burn number, show both interpretations, label the assumption, and require bank reconciliation before an irreversible decision.
4. Calculate gross burn, net burn, and naive runway.
5. Build monthly base, upside, and downside cash schedules.
6. Find breakeven, cash-out, and Plan B trigger dates.
7. Test zero fundraising, delayed fundraising, slower growth, churn, and collection delays.
8. Rank revenue and cost levers by magnitude, speed, certainty, and damage to core value.
9. Freeze commitments that fail the spend test.
10. If fundraising runs beside operating repair, assign separate owners and a fixed weekly time budget, exclude unwired interest from cash, set interim proof gates such as partner meetings and a credible lead, and stop the process at a precommitted date when those gates fail.
11. Assign weekly cash and revenue owners.
12. Communicate decisions honestly and use counsel for insolvency, layoffs, taxes, debt, or shutdown.
13. Update monthly in normal conditions and weekly below twelve months.

Checklists

Model integrity

• Cash reconciles.
• Revenue means collected or conservatively collectible cash.
• Gross margin is modeled.
• Signed hires and obligations are included.
• Unwired financing is excluded.
• Downside cases and trigger dates exist.

Action integrity

• Plan B has an owner and start date.
• Cuts protect the core customer value loop.
• Employee and statutory obligations are reserved.
• Fundraising has a time box and fallback.
• The board and team receive truthful, appropriately scoped communication.

Red Flags

• Runway is cash divided by last month's burn with no forward schedule.
• The model counts pipeline, unsigned deals, or investor interest as cash.
• Growth is extrapolated from a promotional spike.
• Hiring is justified as the way to fix weak PMF.
• Cuts are delayed to avoid signaling weakness.
• Fundraising consumes the remaining operating window.
• Taxes, payroll, severance, leases, or debt are omitted.
• The company reaches zero cash before deciding what to do.

Common Mistakes

• Confusing gross burn and net burn.
• Ignoring margin and collection timing.
• Using blended growth despite deteriorating cohorts.
• Making equal cuts instead of protecting the core mechanism.
• Waiting for a failed raise to start Plan B.
• Treating default alive as a reason to stop pursuing growth.
• Giving legal insolvency or employment advice without qualified counsel.

Metrics

• Cash balance
• Gross and net burn
• Runway under base and downside cases
• Collected recurring revenue
• Gross and contribution margin
• Logo and revenue retention
• Growth by retained cohort
• Burn multiple as a secondary efficiency indicator
• Breakeven month
• Plan B trigger date
• Committed but unpaid obligations

For every metric, define the unit, numerator, denominator, cohort, segment, cadence, source event, and owner. Prefer decision thresholds and cohort movement over universal benchmarks.

Example Scenarios

Scenario 1

Ten months runway and weak retention: freeze sales hiring; capital will amplify churn unless the funding explicitly buys a retention test and leaves sufficient buffer.

Scenario 2

Four months runway with a live raise: set a short fundraising deadline and begin reversible cuts now; investor interest is not cash.

Scenario 3

Default alive but slow growth: do not optimize for comfort. Preserve the survival floor while investing deliberately in proven retained growth.

AI Prompt Templates

Template 1

Build a monthly default-alive model from these inputs. Separate facts from assumptions, show base/upside/downside cash, breakeven, exhaustion, and Plan B dates.
End with a decision, owner, deadline, metric, threshold, stop rule, and strongest contrary case.

Template 2

Rank these revenue and cost actions by cash impact, speed, confidence, reversibility, and harm to the core product.
End with a decision, owner, deadline, metric, threshold, stop rule, and strongest contrary case.

Template 3

Write a decision memo for a company with this runway. State what to freeze, what to protect, when fundraising stops, and when qualified counsel becomes necessary.
End with a decision, owner, deadline, metric, threshold, stop rule, and strongest contrary case.

Related Skills

• founder-retention
• founder-pricing
• founder-prioritization
• founder-distribution
• founder-debugger

Further Reading

1. Default Alive or Default Dead? — The defining test: under conservative constant-expense and recent-growth assumptions, does cash reach breakeven?
2. The Fatal Pinch — Diagnoses the deadly combination of short runway, high burn, mediocre growth, and dependence on another raise.
3. Ramen Profitable — The strategic freedom created when founders can cover the company's minimal expenses.
4. Advice for Companies With Less Than One Year of Runway — A direct playbook for facing facts, preserving leverage, cutting burn, and handling the point of no return.
5. Jessica Livingston's Pretty Complete List on How Not to Fail — Connects measurement, growth, default-alive awareness, and resistance to overhiring.
6. A Guide to Seed Fundraising — Clarifies when capital is useful, what milestone it buys, and why it must not be assumed.

Source Links

• Default Alive or Default Dead? — Paul Graham. The defining test: under conservative constant-expense and recent-growth assumptions, does cash reach breakeven?
• The Fatal Pinch — Paul Graham. Diagnoses the deadly combination of short runway, high burn, mediocre growth, and dependence on another raise.
• Ramen Profitable — Paul Graham. The strategic freedom created when founders can cover the company's minimal expenses.
• Advice for Companies With Less Than One Year of Runway — Dalton Caldwell. A direct playbook for facing facts, preserving leverage, cutting burn, and handling the point of no return.
• Jessica Livingston's Pretty Complete List on How Not to Fail — Jessica Livingston. Connects measurement, growth, default-alive awareness, and resistance to overhiring.
• A Guide to Seed Fundraising — Geoff Ralston. Clarifies when capital is useful, what milestone it buys, and why it must not be assumed.
• Startup Playbook — Sam Altman. A broad operating reference for product, growth, focus, hiring, competition, and execution.
• YC's Essential Startup Advice — Y Combinator. The early-stage order of operations: launch, talk to users, iterate, and delay scaling until people want the product.
• A Framework for Navigating Down Markets — Andreessen Horowitz. Adds scenario planning and burn-multiple analysis as secondary efficiency tools.
• The 18 Mistakes That Kill Startups — Paul Graham. Failure patterns spanning founders, users, focus, launch, spending, and fundraising.