You're default alive if your business will reach profitability before its cash runs out, assuming nothing changes: no new funding, costs carrying on as planned, revenue growing at its current pace. If it won't, you're default dead. The idea comes from Paul Graham's essay Default Alive or Default Dead?, and it's the most useful five-minute check a founder can do. Here's how to do it.
Why this question beats "how's it going?"
Most founders know their revenue. Fewer know their runway. Very few have put the two together and asked the question that actually decides whether the company survives: do the lines cross in time?
Revenue growth feels like progress, and it is. But if costs are growing too, or growth is slowing, a business can add customers every month and still be heading for the wall. Default alive turns a vague feeling into a yes or a no, with a date attached.
It also changes what you do next. A default-alive business can take its time: raise money if it wants to, not because it has to. A default-dead one needs to change something now, while there's still room to.
What you need
Four numbers. Rough is fine for a first pass.
- Cash in the bank today. Actual cash, not revenue booked. Leave out money that isn't yours, such as VAT you've collected for HMRC.
- Monthly revenue. What actually came in last month.
- Monthly costs. Everything going out: salaries, contractors, software, rent, your own pay if you take one.
- Monthly revenue growth. The average over the last three to six months. If revenue went from £8,000 to £9,000 over three months, that's about 4% a month.
The worked example
Say you run a small SaaS business. These are hypothetical numbers:
- Cash: £60,000
- Revenue: £8,000 a month
- Costs: £13,000 a month
- Growth: 4% a month, and costs stay flat
Today you're burning £5,000 a month (£13,000 out, £8,000 in). Divide cash by burn and you get 12 months of runway, but that assumes revenue stays flat, which it won't.
Instead, roll it forward month by month. Revenue grows 4% each month: £8,000, then £8,320, then about £8,650, and so on. Burn shrinks as revenue catches up. Each month, take the burn away from cash.
| Month | Revenue | Burn | Cash left |
|---|---|---|---|
| 1 | £8,000 | £5,000 | £55,000 |
| 4 | £9,000 | £4,000 | £42,000 |
| 7 | £10,120 | £2,880 | £32,200 |
| 10 | £11,390 | £1,610 | £26,000 |
| 12 | £12,320 | £680 | £24,200 |
| 13 | £12,810 | £190 | £24,000 |
| 14 | £13,320 | none | £24,300 |
Revenue passes costs in month 14, with about £24,000 still in the bank. This business is default alive. (The figures are rounded; a spreadsheet will give you slightly different pennies.)
Now change one thing. Say growth is 2% a month instead of 4%. Revenue only passes £13,000 in month 26, but the cash runs out in month 17. Same business, same costs, half the growth: default dead, with about 16 months to fix it.
That's the point of the check. The difference between alive and dead is often one number, and it's rarely the one founders are watching.
The traps
Counting revenue you haven't collected. If customers pay on invoice, some of them will pay late and a few won't pay at all. Use cash received, or knock a realistic share off.
Assuming growth holds. Growth usually slows as a business gets bigger. If your last three months were unusually good, use a more cautious rate for the check.
Forgetting planned costs. A hire you're about to make, a price rise from a supplier, an annual software bill due in March. Add them in the month they land.
Mixing up profit and cash. A business can be profitable on paper and short of cash, for example if customers pay annually in advance and you've already spent it. Default alive is a cash question.
Ignoring seasonality. If your income has a busy and a quiet season (estate agents, for example, often have a slow winter for sales), a straight growth rate will mislead you. Compare with the same month last year.
What to do with the answer
If you're default alive, write down the month you reach profitability and check it again every month. The date moving later is an early warning.
If you're default dead, you have three levers, and it's worth modelling each before you pull one:
- Grow revenue faster: a price rise, better conversion, less churn. The price increase calculator shows how many customers a rise could cost you before it stops paying.
- Cut costs: usually the fastest lever and the least pleasant.
- Raise money: which buys time, but only if you can raise it before you need it.
Most businesses end up using a mix. The useful question is which mix gets you to "alive" with the most room to spare.
Checking it on your own numbers
The five-minute version above works, but it goes stale the day your numbers change. Scenario's Runway page does this continuously from your Stripe or accounting data: a 24-month cash projection, the default alive or default dead verdict and the month it flips, with planned hires, costs and funding added in. You can see it on a sample business in the live demo, no sign-up.
The takeaway
Four numbers, one question: do revenue and costs cross before the cash runs out? Work it out today, write down the date, and check it again next month. If the answer is no, you've found out while there's still time to change it, which is the whole point.
See it on your own numbers.
Scenario connects to Stripe or your accounting software, forecasts next month and answers what-if questions in plain English. Free to start.
Scenario’s figures are estimates from your data and stated assumptions, not financial advice. Scenario is not affiliated with Stripe.