The Zombie Test
Is your company default alive or default dead?
What is The Zombie Test?
The Zombie Test is a critical financial health assessment technique that determines whether your startup is 'default alive' (naturally growing toward profitability) or 'default dead' (headed toward failure without significant changes). Popularized by Y Combinator's Paul Graham, this test involves projecting your current revenue growth rate and burn rate to see if you'll reach profitability before running out of money.
This quantitative analysis goes beyond simple runway calculations by examining growth trajectories and market traction sustainability. It forces founders to confront the reality of their business model and market validation with hard numbers, making it an essential tool for honest startup assessment. The test is particularly valuable because it can be performed entirely with internal data, requiring no external research or customer interviews.
When to Use This Experiment
• After initial product-market fit signals - When you have some revenue and want to assess long-term viability • Before fundraising rounds - To determine if you actually need investment or just better execution • During quarterly business reviews - As a regular health check on your startup's trajectory • When burn rate is increasing - To understand if growth justifies increased spending • After major product pivots - To validate that new direction has viable economics • When considering major hiring - To ensure growth can support increased operational costs • Before major marketing spend - To determine if current unit economics support scaling
How to Run This Experiment
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Calculate your monthly recurring revenue (MRR) and growth rate - Track your revenue for the last 6 months and calculate the month-over-month growth percentage. Be conservative in your estimates.
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Determine your monthly burn rate - Calculate how much cash you're spending each month, including all operational expenses, salaries, and overhead costs.
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Project revenue growth forward - Using your current growth rate, project your monthly revenue for the next 12-24 months. Create a spreadsheet with monthly projections.
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Calculate when you'll reach break-even - Find the month where projected revenue equals or exceeds your monthly burn rate, assuming burn rate remains constant.
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Determine your current runway - Divide your current cash by monthly burn rate to see how many months you have before running out of money.
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Compare break-even point to runway - If you'll reach profitability before running out of cash, you're default alive. If not, you're default dead.
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Test different scenarios - Run the analysis with conservative, realistic, and optimistic growth rates to understand your range of outcomes.
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Create action plans based on results - If default dead, identify specific changes needed in growth rate or burn rate to become default alive.
Pros and Cons
Pros
• Uses only internal data - No need for market research or customer surveys • Highly actionable results - Provides clear direction for strategic decisions • Fast execution - Can be completed in under an hour with existing financial data • Quantitative and objective - Removes emotional bias from viability assessment • Regular monitoring tool - Can be repeated monthly to track progress
Cons
• Assumes linear growth - May not account for market saturation or growth curve changes • Doesn't factor external variables - Market conditions, competition, or economic changes aren't considered • Static burn rate assumption - Doesn't account for scaling costs or operational changes • Limited to existing business model - Doesn't evaluate potential pivots or new revenue streams • Can create false confidence - Early-stage startups may lack sufficient data for accurate projections
Real-World Examples
Buffer's transparency approach: Buffer regularly performed zombie tests as part of their transparent startup journey, sharing monthly revenue and growth metrics publicly. They used this analysis to determine when they could sustain their remote team without additional funding, ultimately helping them bootstrap to profitability. Their consistent application of this test helped them avoid unnecessary dilution and maintain founder control.
Basecamp's sustainable growth model: Jason Fried and DHH at Basecamp (formerly 37signals) used zombie test principles to build a sustainably profitable company without venture funding. By regularly analyzing their growth trajectory against costs, they identified that their SaaS model would reach profitability within their available runway, allowing them to focus on product quality over rapid scaling. This approach helped them maintain profitability for over two decades.