Lower Your Personal Burn Rate to Enhance Your Optionality

One big hurdle for some aspiring founders is their lifestyle—the amount of money required to maintain it is so high that entrepreneurship isn’t a viable option. There’s an argument that every dollar that goes into the founder’s pocket reduces the resources available to scale the company. You often see founders take small salaries with large equity positions in the early years. The thought is that if the business is successful, the equity will be orders of magnitude larger than the forgone salary.

You may not have thought about it this way, but personal burn rate and optionality are correlated (for most people). The higher your personal burn rate, the lower your optionality. A high personal burn rate prevents many people from entertaining opportunities with a big upside but lower initial salary.

Anyone serious about founding a company or joining an early-stage company should keep their personal burn rate as low as possible. This doesn’t mean you shouldn’t enjoy life. Nothing’s wrong with doing one-off things that bring you joy, such as taking a trip. It does mean to be strategic about the recurring monthly payments and other monthly outflows you get accustomed to.

I like to think of a low burn rate not as limiting, but rather as not allowing past decisions to restrict your options. The lower the personal burn, the more interesting opportunities you can consider.