How to get runway and validation right before going full-time on your project

Some folks don't go full-time on their projects until their MRR can replace the income from their current employment. There's good reason for that, but depending on your situation, it is often a good idea to go all-in on a project sooner.

If you're going all-in, then there are two things that you need before you take the leap:

1. Validation
2. Runway

Getting validation

The only (somewhat) reliable form of validation is dollars in your hand. Everything else (market research, user feedback, etc.) is just an indicator that you're headed in the right direction.

I wrote a comprehensive post on the topic of validation a while back, so I won't rehash it here. Check it out if you'd like to learn about validation methods and tools.

In this post, I want to focus on the second must-have: Runway.

Calculating runway

The equation for how many months of runway you have

If you're leaving the land of the gainfully employed and heading out on your own, you're going to need some money in the bank. The question is, how much?

Calculating runway is a little different for indie hackers than it is for most businesses. Here's the equation I'd suggest using:

Months of Runway = Savings / Monthly Net Burn Rate

Note that it's the monthly net burn rate, meaning that we're including income.

This is where it gets slightly more complicated for indie hackers. We have to include our personal expenses, our MRR (excluding roughly 30% for taxes), and any other income we might have. Side note: Other income might include other products, freelancing, spouse's income, etc., but it should not include your current job.

So here's the indie hacker runway equation:

Months of Runway = Savings / ((Monthly Biz Expenses + Monthly Personal Expenses) - ((Biz MRR*0.07) + Other Monthly Income))

Check out what you've got in your bank account. Take a look at what you spend every month on personal bills, expenses, etc. I'd recommend looking at the withdrawals of the last three months (at least) and taking the most expensive month. If you plan to try reducing your monthly spend, don't wait until you quit your job. Try it for a few months so that you have a realistic idea of how much you'll spend (most folks overestimate how much they can reduce costs). Keep in mind that expenses may actually increase (health insurance, for example). And if you're trying to set aside money for something else (house, investments, etc.), add the monthly amount to your expenses too so that it's accounted for in the runway.

Now, do the same for your business expenses. And add some cushion to both just to be safe.

Then subtract your MRR (less ~30% for taxes) and other income from the expenses. Divide your savings by the difference, and the quotient is the number of months you have left.

So for example, if you've got $20K, your personal expenses are $3K/mo, business expenses are $1K/mo, MRR is $1K/mo ($700 after tax), and freelancing brings in $1k/mo, then you've got 9.7 months of runway. 9.7=20,000/(4,000-1,700). Simple enough.

If your income exceeds your expenses, then nice work. You did it. You have unlocked infinite runway. But some savings wouldn't hurt, as MRR can go up and down.

And one note about savings. Only include the savings you're willing to spend. Probably don't include your nest egg or your child's college fund.

The equation for how much money to set aside before quitting

If you're trying to calculate what you'll need to save, then you've gotta take the equation above and throw some algebra at it. Luckily for us, I'm suddenly a middle-school math prodigy, so here's the equation:

Required Savings = Desired Months of Runway * ((Monthly Biz Expenses + Monthly Personal Expenses) - (Biz MRR + Other Monthly Income))

The equation for how many months of runway you need

Of course, for the equation above, you'll need to know how many months of runway are needed. You can go with your gut (or someone's advice — see below), but it can help to get a little bit more scientific about it. Here's how I would figure it out:

(Desired MRR / (Current MRR / Months it took to hit this MRR)) - Months it took to hit this MRR

Desired MRR, in this case, would probably be your total expenses. So basically, all this is saying is, "At the rate that it took you to get here with your business, how soon can you expect to pay your bills with it?" You need your runway to last that long, plus cushion.

You could get fancier with it, as revenue growth tends to have some degree of exponentiality to it, but that's beyond me and IMO unnecessary for our purposes.

What most indie hackers recommend

Beyond that, how much runway you need will depend on your responsibilities, your taste for risk, and your plan B (can you freelance or get another job easily if things go south?). The absolute minimum that I've seen recommended is 6 months. Most indie hackers seem to go for 12 months. And I've also seen both 24 and 36 months.

Some folks take it a step further. Pieter Levels says to wait until your revenue surpasses the income of your job for six months… and make sure you have three years' worth of savings as well. Seems steep to me. The guy really knows what he's talking about so it's worth considering, but in my mind, that's a recipe for never going all-in on your product.

Let me know your thoughts! And if you're interested in getting similar posts to your inbox, subscribe 👇

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