Default Dead vs Default Alive
Know whether your current trajectory leads to profitability or failure.
Explanation
Paul Graham's framework: startups are either 'default dead' (will run out of money before becoming profitable) or 'default alive' (current revenue growth will reach profitability before running out of money). Most founders don't do this calculation, which leads to sudden death when fundraising fails. Always know which category you're in.
Real-World Example
A startup burning $50k/month with $300k in bank and 20% monthly revenue growth might be default alive if growth continues. Another burning $100k/month with $1M in bank but no revenue growth is default dead. The math determines your urgency around fundraising, expense cutting, and revenue focus.
How to Apply
Calculate your runway: cash divided by monthly burn rate. Project revenue growth and when it will exceed expenses. If default dead, either cut costs, raise money, or dramatically increase revenue growth. If default alive, you have options—still good to raise money, but not desperate. Redo calculation monthly as metrics change.