“We’re default alive.” she muttered from behind her screen.
She then rose from her chair, raised her arms and defiantly yelled“ WE ARE DEFAULT ALIVE”!
The phrase comes from a Paul Graham essay from a few years back titled Default Alive or Default Dead. PG frames this question with the following scenario:
Assuming their expenses remain constant and their revenue growth is what it’s been over the last several months, do they make it to profitability on the money they have left? Or to put it more dramatically, by default do they live or die?
(PG’s Partner Trevor designed a slick tool to help answer that question)
The relief on her face was obvious. The empowerment in her voice was undeniable. And, the effect of this new found independence was almost immediately evident.
Not only was the company growing faster than it ever had, they were doing it with far fewer resources than they’d ever had.
You see, after a wildly successful time raising her seed round, this founder had no luck raising a Series A. The investors who missed out on the seed were eager to hear an update. Eager to dive into each and every one of her metrics. Eager to brainstorm ideas for new products, new markets and new partners.
What they weren’t eager to do was write a check.
As the conversations ran on, her runway ran out.
Two of her seed investors stepped in to offer a “bridge” loan. With a financial lifeline secured, she made dramatic cuts to the product roadmap and to the team she needed to execute it. A smaller team and a narrower focus soon revealed holes in many of their assumptions and flaws in the product that were nearly impossible to see through the beer goggles of a world awash in “easy money”.
Her plan was to treat the new cash like her last cash- the last money she would ever HAVE to raise.
She cut off conversations with investors and became laser focused on getting the business to the point where it could live on its own. Her ambition did not wilt because she was suddenly unfundable. Her pace didn’t slow because her resources shrank.
This idea that cash somehow equates to speed or correlates with ambition simply didn’t play out in reality. As PG notes in his post:
Growing fast versus operating cheaply is far from the sharp dichotomy many founders assume it to be. In practice there is surprisingly little connection between how much a startup spends and how fast it grows. When a startup grows fast, it’s usually because the product hits a nerve, in the sense of hitting some big need straight on. When a startup spends a lot, it’s usually because the product is expensive to develop or sell, or simply because they’re wasteful.
After yet another year of whiplashing unpredictability from the venture market, today is a great time to focus on becoming default alive. The empowerment that comes from scaling your business independent of the whims of investors is far more freeing than founders have been led to believe.
There’s a second order effect that comes from being “default alive” that this founder soon discovered- within months of her revelation behind the keyboard that day she received an unsolicited offer from a great firm to lead a new round of funding. Turns out the most effective pitch VC pitch really is that you don’t need to raise money.
*a footnote to this post, to highlight a footnote in PGs original post:
 I would not be surprised if VCs’ tendency to push founders to overhire is not even in their own interest. They don’t know how many of the companies that get killed by overspending might have done well if they’d survived. My guess is a significant number.
This idea is at the heart of Indie.vc.
We deeply believe that many many more companies could survive AND thrive by focusing their early energy on building real businesses that are default alive and we are dedicating all of our energy and resources towards supporting them.