Paul Graham Default Alive Burn Audit

A structured financial review based on Paul Graham default alive audit principles to measure cash runway, growth trajectories, and monthly expenses.

5 time blocks, 45 minutes in total.

Time blocks

Calculate Net Monthly Burn Rate: 10 min
Subtract gross monthly revenue from total monthly expenses
Audit Cash Balance and Runway: 5 min
Divide current cash balance by monthly net burn rate
Trailing Revenue Growth Projection: 10 min
Calculate average growth percentage across the last three months
Default Alive vs Default Dead Classification: 5 min
Determine if growth achieves profitability before cash hits zero
Expense Line Item Trimming: 15 min
Cut unnecessary software costs and defer optional spend

About this routine

In 2015, Y Combinator co-founder Paul Graham published a seminal essay outlining why startup founders must know whether their business is default alive or default dead. Performing a Paul Graham default alive audit forces founders to calculate their true net burn rate and revenue growth trajectory well before cash reserves run thin.

The process removes optimism from financial planning. Rather than assuming a future funding round will save the company, this exercise measures whether current revenue growth will cross profitability before available capital reaches zero. If the calculation reveals the company is default dead, immediate operational adjustments are required.

Running this financial assessment regularly allows leadership teams to trim unnecessary subscription costs, freeze discretionary spending, and realign hiring plans. Taking control of monthly burn rate ensures the business maintains full ownership over its long term survival.

Why this routine works

Eliminates ungrounded optimism in cash runway projections
Identifies exact net monthly burn rate and runway in months
Determines whether the business will reach profitability without external capital
Highlights discretionary expense cuts needed to reach default alive status

FAQ

What is a default alive audit?

A default alive audit calculates whether your company's current revenue growth rate will make it profitable before cash reserves run out.

What does default dead mean in Paul Graham's framework?

Default dead means that at current revenue growth rates and burn rates, the company will run out of money before becoming profitable.

How often should founders check if they are default alive?

Founders should perform this audit monthly or whenever revenues or expenses experience significant shifts.

Sources

Default Alive or Default Dead?, Paul Graham