Default Alive or Default Dead?

Paul Graham’s essay Default Alive or Default Dead? argues that startups should determine whether they will reach profitability with their current resources and growth rate.

The Core Question

Will you reach profitability with your current resources and growth rate? This determines if you’re “default alive” or “default dead.”

Many founders don’t know their financial trajectory. Ask this question early to avoid the “fatal pinch.”

Separate Facts from Hopes

Distinguish between actual metrics and optimistic assumptions about fundraising. “We’re default dead, but we’re counting on investors to save us” should trigger alarm bells.

The Overhiring Trap

The biggest killer of funded startups is hiring too quickly. Founders mistakenly believe more employees equal faster growth, but this often masks an underlying problem—insufficiently appealing products.

Product Over Scale

Rather than expanding staff, focus on improving your core offering. “The product needs to evolve more than to be ‘built out,’” which requires fewer people, not more.

Conflicting Incentives

VCs favor aggressive strategies due to portfolio protection. Founders should prioritize survival through sustainable growth and disciplined spending.

My Takeaway

Know your path to profitability. Don’t assume you can raise more money. Default alive is the safer position.

Are you default alive or default dead? I’d love to hear at persdre@gmail.com.