The Last $250K

In the past year, I've worked with many companies with very limited financial runway. I've noticed a very common behavior pattern that I've started to call "the last $250K effect"; there is a very pronounced change in behavior and execution when companies are down to their last $250K or so in the bank. For the type of companies I work with, that $250K usually translates to 4-6 months of life, barring a fundraise or other capital infusion.

These companies often worked hard when they had more runway; they were not lazy. However, having a very limited runway spurs a level of activity and focus that was previously not present and causes a pretty marked change in their behavior. I've observed three distinct changes in companies once "the last $250K effect" starts to kick in:

• The most important things to work on become incredibly clear - The single biggest change I see in these teams is clarity. The limited runway forces teams to only work on the things that matter most and things that matter most usually present themselves as obvious when it's do-or-die time. Things that previously would have taken a quarter somehow get done in weeks and these companies unlock a new gear in terms of productivity and output.

• The data needed to validate the company's hypothesis becomes much clearer - We live in a world where startups can generate tons of data and metrics. Some of these metrics and data matter, but most of them don't. In the end, there is usually a very small set of data and metrics that indicate you're on the right track and should keep going. Limited runway also tends to focus teams on getting data or evidence around the things that really matter and to figure out how to move those metrics as opposed to getting a lot of other important but not essential KPIs to point in the right direction.

• There are things that the company was doing that they stop doing because those things don't really matter given the gravity of the situation - In almost every case, there were side projects, exploratory work, or other activities in the company that get dropped in the name of focus. Under the harsh light of limited runway, projects that were important but not essential or were basically going nowhere get shelved. Things that have been maintained or kept alive because the cost of doing so felt small get shut down and cut off. It's a pretty ruthless process, but it tends to happen quite quickly.

The behaviors that these companies exhibit on their last bit of capital are exactly the behaviors that top companies exhibit well before they face the existential dread of running out money in 1-2 quarters. I've been thinking about what I can do as an investor to help companies who have resources and runway operate this way before things become too dire. I'm not sure urgency can be taught, but I do think the best companies I work with have urgency around these questions well before runway becomes an issue.