Default Alive or Default Dead? How to Work It Out

A startup is default alive if, with its current revenue growth and expense plan, it will become profitable before its cash runs out, without raising another round. If the cash runs out first, it is default dead. To find out which one you are, project revenue and expenses month by month from today's numbers and realistic growth rates, and check whether revenue overtakes expenses before your bank balance reaches zero.

The question is short, but answering it honestly changes how you plan hiring, spending and fundraising. This guide shows how to calculate it, works through an example and explains what to do with the answer.

Where the idea comes from

The terms come from Paul Graham's essay Default Alive or Default Dead?, published in October 2015. His point was that many founders cannot answer the question, and that it matters most early: if you are default dead and find out with plenty of runway left, you can still change course. If you find out with three months left, your choices are few and expensive.

The concept is useful because it combines two numbers founders usually look at separately. Runway tells you how long the money lasts. Growth tells you how fast revenue rises. Default alive asks whether the second arrives in time to save the first.

What you need

Input	Where it comes from	Tip
Cash	Bank balances today	Only money you have, not money promised
Monthly revenue	Customer cash received	Use a three-month average
Monthly expenses	All cash out (gross burn)	Include signed hires and known renewals
Revenue growth per month	Recent actual growth	Use what you achieved, not the plan
Expense growth per month	Your hiring and spending plan	Zero only if you really freeze costs

If you are unsure about the expense side, the guide on how to calculate burn rate walks through gross and net burn from bank data.

How to calculate it step by step

1. Start with today's cash, revenue and expenses. Use averages rather than your best or worst month.
2. Choose growth rates. Take the average monthly revenue growth of the last three to six months. For expenses, model the hires and costs you have actually planned.
3. Project month by month. For each month, revenue = last month's revenue × (1 + revenue growth), expenses = last month's expenses × (1 + expense growth), and cash = last month's cash + revenue − expenses.
4. Find two months: the month in which revenue first covers expenses (break-even) and the month in which cash would fall below zero.
5. Compare. If break-even comes first, you are default alive. If cash runs out first, you are default dead.

You can do this in a spreadsheet, but the runway calculator does exactly this projection: it takes cash, revenue, expenses and both growth rates, shows the zero-cash date and the break-even month, and tells you directly whether the inputs are default alive or default dead.

A quick shortcut for the break-even month

If you want a rough answer without a projection, the number of months until revenue catches up with expenses is approximately:

months to break-even ≈ ln(expenses ÷ revenue) ÷ ln((1 + revenue growth) ÷ (1 + expense growth))

Compare that with your runway at today's burn. If break-even is much later than your runway, you are almost certainly default dead. If the two are close, you need the full month-by-month projection, because the shrinking burn along the way extends your runway.

Worked example

A hypothetical SaaS startup has:

• Cash: €480,000
• Monthly revenue: €12,000
• Monthly expenses: €44,000, growing 1% per month
• Net burn today: €32,000, so runway at today's burn is 15 months

These are the default values in the runway calculator, so you can reproduce every number below.

Scenario A: revenue grows 6% per month.

Month	Revenue	Expenses	Net burn	Cash at month end
1	€12,000	€44,000	€32,000	€448,000
6	€16,059	€46,244	€30,186	€293,015
12	€22,780	€49,089	€26,310	€124,409
18	€32,313	€52,109	€19,796	below zero

Cash runs out after about 17.4 months, while revenue is still almost €20,000 a month short of expenses. The shortcut formula says break-even would need roughly 27 months. Default dead.

Scenario B: revenue grows 8% per month.

Month	Revenue	Expenses	Net burn	Cash at month end
1	€12,000	€44,000	€32,000	€448,000
6	€17,632	€46,244	€28,613	€297,342
12	€27,980	€49,089	€21,110	€149,695
18	€44,400	€52,109	€7,709	€66,354
21	€55,931	€53,688	−€2,243	€62,551

Revenue overtakes expenses in month 21, and cash bottoms out at around €60,000 just before that. Default alive, but only just.

Two percentage points of monthly growth make the difference between needing a round and not needing one. Testing rates in between shows that, with these inputs, the threshold lies at roughly 7.2% per month. That threshold is the most useful number in the whole exercise: it tells you what growth rate you must sustain for the plan to work on its own.

Default alive is not the same as safe

A "default alive" result is only as good as its assumptions.

• Growth rarely stays constant. Monthly growth rates often slow as the revenue base grows. If your result depends on a rate you have only achieved for two months, treat it as fragile.
• Thin margins of cash. In scenario B, the lowest cash balance is about €60,000, a little more than one month of expenses. One bad quarter or a large customer leaving could flip the result.
• Expense plans change. Every new hire raises expense growth. Re-run the test before you commit to one.
• Revenue quality matters. Churn, annual prepayments and seasonality make monthly revenue lumpy. Use cash received, averaged over several months.

A practical rule: run a cautious scenario with growth well below your recent average, for example half of it. If you are default alive even then, you have real resilience. If only the optimistic case works, plan as if you were default dead.

If you are default dead

Many venture-funded startups are default dead for a while by design, because they spend ahead of revenue. It becomes dangerous when nobody says it out loud. There are three ways out, usually in combination:

1. Raise money. This is the plan for many startups, but it is not under your control. A round can take months, and investors are more cautious with companies that need the money to survive. Start well before the zero-cash date.
2. Lower expenses. Cutting or delaying costs moves the break-even point earlier and stretches runway at the same time.
3. Grow revenue faster. Pricing, sales focus and faster collections can raise the effective growth rate, though usually with a delay.

The specific levers, from software audits to bridge rounds, are covered in how to extend startup runway. The aim is to move the break-even month in front of the zero-cash month, with a buffer.

Make it part of your monthly review

The test takes a few minutes once your numbers are in order. Add four lines to your monthly metrics review:

• Default alive or default dead (at recent actual growth)
• Projected break-even month
• Projected zero-cash month
• Minimum monthly revenue growth needed to be default alive

The last line is the one to watch over time. If the required rate keeps rising while your actual growth stays flat, you are drifting towards a forced decision. The other numbers worth tracking each month are listed in startup financial metrics.

Common mistakes

Counting promised money as cash. A verbal commitment from an investor does not pay salaries. Use only cash in the bank.

Using the best month's growth rate. A single strong month inflates the projection. Average several months.

Assuming flat expenses. If you plan to hire, expenses will rise. A flat-cost projection makes almost any company look default alive.

Checking once. The answer changes with every hire, price change and lost customer. Re-run it monthly.

Ignoring how long fundraising takes. Being default dead with 18 months of runway is a plan. Being default dead with four months of runway is an emergency.

Checklist

• Cash, revenue and expenses taken from bank data, averaged over three months
• Revenue growth based on recent actual results, not the target
• Expense growth includes planned hires and known cost changes
• Break-even month and zero-cash month both identified
• Cautious scenario with lower growth tested
• Minimum growth rate for default alive calculated and recorded
• Result reviewed every month and before each major spending decision

Summary

Default alive means your current growth gets you to profitability before your cash runs out; default dead means it does not. Work it out by projecting revenue, expenses and cash month by month from realistic inputs, and compare the break-even month with the zero-cash month. The most useful output is the minimum growth rate you need. Check it monthly, test a cautious scenario, and if you are default dead, decide early whether you will raise, cut or grow your way out.

This article is general information, not financial advice. Projections depend on assumptions that may not hold; for decisions with significant consequences, involve your accountant or a financial adviser.