For years I thought that entrepreneurs should plan for two years of personal runway to have sufficient time to iterate on an idea and get to break even. Looking back on it, I was wrong. After starting a few companies and investing in several more, I now believe entrepreneurs should plan for three years of financial runway.
Here are a few reasons why entrepreneurs should plan for three years:
- Pardot took three years and Hannon Hill took four years to clear $1 million in revenue ($1 million is a great milestone for sustainability as well as the ability to pay a decent salary for the founders)
- Almost all successful companies go through at least one pivot (see examples)
- Finding product/market fit often takes 1-2 years and building a repeatable customer acquisition process often takes 1-2 years, making the prospects of solid revenue in less than three years unlikely (see the 4 Stages of a B2B Startup)
So, when thinking about taking the entrepreneurial plunge, budget for three years of personal runway. Building the base of a successful business is a long, hard process.
What else? What are your thoughts on planning for three years of personal runway?