In the SmartUp methodology, Burn Rate is the critical variable that determines a startup’s survival. Yonatan Stern defines a company’s available lifespan using a simple equation: Money in the Bank divided by Monthly Expense (Burn Rate). For example, if a startup has $5 million in the bank and a burn rate of $1 million per month, it has exactly five months to live. When that time ends, the company must either shut down or raise more capital.
Time is treated as a finite resource. Because finding product-market fit requires experimentation, a high burn rate shortens the window a startup has to succeed before running out of cash.
The sources emphasize that burn rate is a rigid expense rather than a flexible one. In most technology startups, salaries account for 70%–80% of expenses. Unlike marketing budgets, which can be paused, employees expect to be paid every month. Hiring therefore creates a rigid cost structure, where each new hire permanently increases the burn rate and cannot be easily reversed.
A high burn rate often leads to a vicious fundraising cycle. A company raises capital, investors expect growth, the company hires more people, salaries increase the burn rate, and the company runs out of cash faster. This forces another fundraising round under pressure, resulting in further dilution of the founders.
The SmartUp strategy for managing burn rate is to hire as few people as possible and focus on generating revenue early. Keeping burn rate low extends runway and gives the company time to reach a profitable business model without depending on constant venture capital injections.
