Also known as Default alive test
Default alive vs default dead asks whether a startup reaches profitability on the cash it has left, assuming current revenue growth and constant expenses.
Key takeaways
Default alive vs default dead asks whether a startup reaches profitability on the cash it has left, assuming current revenue growth and constant expenses. If projected growth gets you to breakeven before the bank hits zero, you are default alive. If you run out first and must raise or cut to survive, you are default dead.
A seed startup holds $900K, burns $75K net per month, and grows revenue 12% monthly off a $40K base. Plotting revenue growth against flat expenses, it crosses breakeven in month 9 with roughly $150K still in the bank, default alive. Drop growth to 4% and it never catches burn before cash runs out, default dead.
Paul Graham coined the framing in his 2015 essay, noting that when he asks founders more than 8-9 months in whether they are default alive or default dead, about half do not know, a sign they are not tracking the one question that determines every other decision.
Source: Paul Graham, "Default Alive or Default Dead?" (2015)
The answer dictates the entire conversation with your board and investors. Default alive lets you play offense, ambitious hires, new bets, because you control your own survival. Default dead means the only agenda is closing the gap: cut burn, accelerate growth, or raise now, before weak metrics make the raise harder.