FOUNDER MODE

Startups, whether tech-based or Web3-native, often fail for one simple reason: they run out of money. Avoiding this fate means maintaining a healthy balance of cash (or crypto reserves) and controlling expenses. For startups, and especially in capital-intensive sectors like NFT marketplaces, staying alive boils down to effectively managing runway — the amount of time your startup can operate before the money dries up.

This article will dive into how founders can extend runway, avoid the traps of debt, and make the hard decisions around staffing, contract obligations, and growth expectations. We'll take an NFT marketplace as a working example, highlighting potential pitfalls and providing guestimated numbers to demonstrate the concepts in action.

The NFT Marketplace: Base Case

Let's imagine you’re the founder of a cutting-edge NFT marketplace — a platform built for artists, creators, and collectors to buy, sell, and trade digital art. You're leveraging technologies like Solana or Ethereum Layer-2, aiming for seamless, low-cost transactions with a sleek UI and robust secondary marketplace features.

Here’s a simple breakdown of your base numbers:

  • Seed round: $3M raised
  • Team size: 10 employees (including engineers, marketing, community managers, legal, etc.)
  • Burn rate: $100,000/month
  • Revenue model: 2.5% transaction fee on sales + minting fees
  • Runway: 30 months (assuming no increase in burn rate)

The Illusion of Comfort: Initial Runway

At first glance, 30 months of runway seems like a safe buffer. However, startup expenses scale faster than anticipated, and for NFT marketplaces, there’s added volatility due to the cyclical nature of crypto markets.

Growth vs. Revenue: The Early Stage Trap

If your marketplace needs to grow its user base rapidly, you might spend more on marketing, partnerships, and community incentives than expected. Assume your burn rate increases to $150,000/month within six months as you invest in acquiring creators, collectors, and influencers.

  • New burn rate: $150,000/month
  • Runway shrinks to 20 months — that’s nearly a 10-month reduction just from scaling efforts.

However, if marketplace traction doesn’t lead to immediate revenue growth, you’ll find yourself with a shrinking runway and no clear path to profitability. Revenue lags growth, and Web3 users are fickle; what’s trendy one day is forgotten the next.

Contracts: The Silent Killers of Runway

One often overlooked threat is the long-term commitments many founders make early on. Imagine you’ve locked in:

  • A 3-year contract for AWS hosting at $25,000/month (to cover node infrastructure, backend services, and data storage)
  • A 2-year office lease for $10,000/month

These are fixed costs that can’t be easily cut when you need to. If 20% of your burn rate is locked into contractual obligations, reducing your monthly expenses during a crisis becomes exponentially harder.

In our NFT marketplace scenario, that’s $35,000/month you can’t touch.

  • With a $150,000/month burn rate, 23% of your spend is now contractually fixed.
  • This means your flexible burn rate (salaries, marketing, etc.) is only $115,000/month.

Runway Extension Through Hard Decisions

Fast forward to month 12. The marketplace has grown significantly in users and transaction volume, but revenue remains flat at $50,000/month. Your burn rate is still $150,000, but you’re not profitable, meaning the net burn is $100,000/month.

  • Current runway: 18 months

Now, if you don’t reach profitability in the next six months, you’ll need to raise another round or cut expenses to stay alive. Let’s break this down:

  1. Month 6 - Cut by 33%
    To extend your runway back to 18 months (from this point), you’ll need to reduce your burn rate by 33%. Since you can’t touch that $35,000/month in contracts, you’ll need to cut people or expenses in other areas — likely laying off 30-40% of your team.
    • New burn rate: $100,000/month (team reduced from 10 to 6 employees)
    • Runway: Extended to 18 months (though morale and growth may take a hit)
  2. Month 9 - Cut by 50%
    If revenue growth hasn’t hit sustainable levels by month 9, more drastic measures are required. Cutting 50% means further layoffs, leaving you with a skeleton team just trying to stay afloat.
    • New burn rate: $75,000/month
    • Remaining team: 3-4 key employees (founder, lead engineer, and one marketing person)
    • Runway: Extended to 12-18 months

Revenue and Market Cycles: Betting on the Crypto Boom

In Web3, particularly with NFT platforms, revenue is tightly linked to market conditions. During bull markets, you may see trading volumes skyrocket and revenue multiply seemingly overnight. But bear markets can last months or even years, drying up revenue streams as user engagement drops.

In month 12, let’s assume a crypto bull market begins:

  • Transaction volume triples
  • Your revenue grows to $300,000/month

With your burn rate now reduced to $75,000/month post-cuts, you’re cash flow positive. Suddenly, you have multiple years of runway, but this will only last as long as the market stays bullish.

Avoiding the “Shiny Object” Syndrome

Many startups get seduced by the idea of expanding too quickly. For NFT marketplaces, this can mean launching across multiple chains, offering native token rewards, or integrating metaverse features. But shiny features often come with large costs and long-term commitments.

Here’s a breakdown of what could go wrong:

  • You launch a native token and airdrop it to your community, expecting it to spur engagement and platform stickiness. However, the token price crashes, and you’re stuck with the cost of maintaining liquidity and legal compliance.
  • You integrate with the metaverse, burning an additional $20,000/month on development, only to see that user adoption is far slower than expected.

Each of these features may sound great on paper, but if they don’t drive revenue within a short window, they’ll simply accelerate your startup’s demise.

Key Takeaways for Founders in Web3

To avoid the startup death spiral, here are the principles to keep in mind:

  1. Conserve runway at all costs: The longer your runway, the more flexibility you have. Avoid hiring too many people too fast or committing to contracts you can’t easily exit.
  2. Revenue first, expansion second: In Web3, market cycles are unpredictable. Make sure your core offering is generating reliable revenue before you branch out to new features, chains, or tokenomics models.
  3. Be paranoid about fixed costs: Even the most promising NFT marketplace will face downturns. Long-term leases and contracts can become unmanageable liabilities when you’re in survival mode.
  4. Embrace tough decisions early: If you’re not seeing the growth or revenue you expected, cut expenses early to preserve runway. Don’t wait until you’re down to your last few months of cash.

Guestimate Financials Summary (for an NFT Marketplace)

  • Initial burn rate: $100,000/month, rising to $150,000 after 6 months of growth initiatives
  • Contractual obligations: $35,000/month locked in for AWS hosting, office space, and legal services
  • Revenue projection: Slow growth initially, $50,000/month by month 6, increasing to $300,000/month during a bull run at month 12
  • Runway fluctuation: Starts at 30 months, shrinks to 18 months by month 12, expands to years if a bull market kicks in and cuts are made strategically.

Conclusion: Founder Mode Survival

In founder mode, extending runway and being ruthless about expenses is the key to survival. An NFT marketplace might thrive in a bull market but suffer during a downturn. By keeping a tight grip on costs, avoiding unnecessary debt, and focusing on revenue growth over flashy expansion, founders can navigate the uncertainty of Web3 and live to see the next boom.