Knowing Your Cost
Think of your entrepreneurial journey as a thrilling adventure. Just like a superhero needs gadgets, entrepreneurs need to understand their cost structure to turn their dreams into reality.
What Is a Cost Structure?
Your cost structure is the complete picture of all the expenses your business needs to operate. It covers three main categories:
1. Direct Costs (Cost of Goods Sold — COGS)
The money you spend directly to make your product or deliver your service:
- Raw materials
- Labour directly tied to production
- Packaging and shipping
2. Operating Expenses
Indirect costs of running the business:
- Rent
- Salaries (staff not directly tied to production)
- Marketing and advertising
- Utilities and legal fees
3. Capital Expenditures (One-Time Startup Costs)
Expenses you pay once to get started:
- Special equipment
- Software and technology
- Website development
- Legal setup fees
The Lean Canvas and Costs
In the Lean Canvas model, the Cost Structure element lists your fixed and variable costs. Rather than projecting costs years into the future, the Lean Canvas approach focuses on 3–6 months ahead — the timeframe of your next milestone.
The Runway Concept
The runway is one of the most important concepts in early-stage entrepreneurship.
Think of it like a plane on a runway. The runway is how long the plane (your business) can keep flying before it runs out of fuel (money).
Runway = How long your business can operate before running out of money
- A long runway gives you more time to grow, learn, and reach profitability
- A short runway means you need to either increase revenue or reduce costs — fast
Calculating your runway:
Runway (months) = Cash on hand ÷ Monthly burn rate
If you have $3,000 saved and spend $500/month, your runway is 6 months.
The Minimum Viable Product (MVP)
The MVP — Minimum Viable Product — is directly linked to your runway. Your MVP is:
- The simplest working version of your product or service
- Designed to solve a core problem for your target customer
- Something you can test with real users before building the full version
By launching an MVP first, you minimize costs and extend your runway while learning what actually works.
The longer the runway, the better your chances of success.