I’m certainly not making the argument that businesses shouldn’t have internal spending limits, but I have heard others say recently that burn rates should be more flexible than set-in-stone. As a founder, I find this to be true. I’ve often felt that we’d be hurting ourselves by staying tethered to burn rates. Sometimes, for example, we study our business and make a plan to iterate and improve. To do so, we need to spend money on people and resources -- money that wasn’t originally allocated. This is the burn rate conflict. How do you reconcile it?
I would suggest that burn rate adherence levels should be directly tied to your (1) your current financial runway and (2) product roadmap and (3) most importantly, who you may be beholden to on the financing side.
If you are completely self-funded, you then have the flexibility to develop your product with the team velocity and features, as you see fit.
However, if you have laid out a plan with objectives and timing milestones, with related funding coming from outside sources, then you have a duty to work towards those goals and within the agreed upon financial framework.
Of course, the situation can change, but if it does, you need to be transparent about it. Every time you miss a target, you and your team lose credibility with those folks paying the bills. This can be crucial if you depend on such people to continue being there for support, financial and otherwise, as your company grows.
First, I ask whether you have outside investors. If so, that means you presented a budget acceptable for them. Now, in my experience, I try to make sure that my variance from my projections are within a tolerable level ..like 15 %. Any more than that will raise questions. (Note the impact on a publicly company's stock value when the company does not hit its numbers.) So it pays to be fairly rigorous. And note also that the numbers are not written in concrete. You can spend more on one thing while reducing costs in another line item. Second, if no outside investors, you can do whatever. But it pays to have the discipline in managing the company's finances well.
sorry but am I naive or is this post a bit weird...
"we have set a business plan in play which allows us to spend more than we make, in order to allow for rapid growth, marketing, etc. A risky model but very common these days and our 5-10 year plan shows it will be a winner in the end. But now we've signed off and all agreed our plan, can we just ignore it and just start spending extra money willy nilly?"
Are your investors reading this!!??