Is your startup burning too much cash? Here's a good way to measure it. I call it the burn multiple. The formula looks like this. Burn multiple equals net burn divided by net new ARR. And you want to measure this for a given period. For example, if you burn three million dollars in a quarter and you generate one million dollars of net new ARR, that's a burn multiple of three.

Once you measure your burn multiple, you can assess whether it's good or not. I have some rules of thumb around this. If your burn multiple is under one, that is amazing efficiency. If your burn multiple is in the one to one and a half range, that's great. If you're at one and a half to two, that's good.

Two to three, you're getting a little bit iffy. It's suspect and over three is bad. Every company that's successful that wants to become profitable will eventually have to reduce their burn multiple so low that it hits zero. So that's the goal. Start with a burn multiple that's high in the early days and gradually get it down over time.

That's how I think about how to manage your burn