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How a global mobility strategy helps startups reduce burn rate

May 8, 2024

Startup leaders rarely make decisions without one eye on their burn rate. It’s no secret why: whether you’re in the early stages of Series A or plan to push into new markets ahead of your exit, prudently managing operating costs is the bedrock of a stable business model.

A global mobility strategy makes it easier for entrepreneurs to stabilize operating expenses and reduce overhead. In this post, we’ll outline how to build a global mobility strategy that helps reduce your startup’s burn rate — and make day-to-day operations less of a headache.

Calculating Your Burn Rate

In simple terms, a burn rate represents how quickly startups spend — or “burn” through — capital. The less cash you burn, the more opportunities investors see to turn a profit, and the more likely your business will be able to afford its operating costs when your revenue, or the economy, dips.

To calculate your burn rate, begin with a period of time (say, a quarter). Then, note your startup’s cash at the end of that quarter, subtract it from the capital resources on hand at the beginning, and divide by three. If it helps, think back to the old maxim “time equals money.”

Metrics that impact your burn rate include:

  • Business model: For example, direct-to-consumer startups that sell crowd-funded product runs may have lower operating costs than startups that sell inventory to a wide customer base. For example, direct-to-consumer startups that sell crowd-funded product runs may have lower operating costs than startups that sell from inventory.
  • Funding rounds: Infusions of venture capital from investors can reduce the burn rate in the short-term, but may also come with expectations for increased spending.
  • Growth strategy: Startups often prioritize rapid growth, which can lead to higher spending on marketing, hiring, and product development.
  • Industry: Burn rates for healthcare and financial services startups, for example, are likely to differ quite a bit.
  • Product development: The more complex the new products roadmap, the greater a startup’s burn rate will likely be.
  • Overhead costs: Rent for office space, utilities, software subscriptions, and other fixed costs contribute to the regular outflow of cash that lays your burn rate’s foundation.
  • Profitability: Since they’re indexed to available capital, burn rates are higher for startups that aren’t profitable and have less cash flow.

Next, let’s look at the risks startups face when operating costs outstrip a leader’s ability to manage the factors above.

The Risks a High Burn Rate Poses for Startups

Unicorns notwithstanding, startups can’t afford to spend cash they don’t have. That’s why a high burn rate puts startup founders at risk of going into the red — a danger that comes with quickly cascading effects. Here are some of the greatest risks a high burn rate poses for startups:

  • Cash depletion: High burn rates can quickly deplete a startup's cash reserves. Failing to secure new funding can quickly lead to painful financial realities, such as layoffs.
  • Dependency on external funding: Since startups with high burn rates often need to raise additional capital through fundraising rounds, their operating costs and ultimate success are particularly susceptible to market fluctuations and investor sentiment.
  • Employee morale: Employees who recognize a startup’s precarious finances will likely experience decreased morale and lower productivity. If employees leave, or you’re forced to reduce headcount to conserve cash, it’s likely to weigh on your remaining employees. This can impact employee retention and could make operations even less efficient.
  • Limited runway: A high burn rate shortens how long a startup can operate before running out of funds. This limits the time available to achieve profitability or secure additional funding.
  • Market perception: Perpetually burning cash without clear signs of progress or revenue generation can erode investor and stakeholder confidence, making it harder to attract future funding or partnerships.
  • Pressure to scale: High burn rates may spark investors to push for rapid growth, leading to premature scaling, cutting corners, and roadmaps that put increasing pressure on already limited resources.

The right global mobility strategy, however, offers a solution.

Adopting a Global Mobility Strategy Can Reduce Burn Rate

Adopting a global mobility strategy can reduce the burn rate for startups without overextending human resources to preserve the amount of money on hand. In fact, the right global mobility strategy may even enhance how you attract, hire, and retain talent.

Access to a Wider Talent Pool

As of January 2024, 89 percent of small business owners reported finding few or no qualified applicants for open positions. A well-formed global mobility strategy helps address this by offering employers access to a wider range of potential employees.

What’s more, a wider talent pool is mutually beneficial for businesses and talent: the remote work model that enables you to hire across borders is a location-neutral benefit that employees can appreciate no matter where they live.

The result forms a sort of virtuous circle. When you recruit globally, you offer an attractive benefit (remote work) to a wider range of prospective employees. This in turn strengthens recruiting efforts and offers the top talent you employ more incentive to stick around.

Streamline Operating Costs

In addition to reducing overhead costs like office leases and utilities, global mobility empowers you to control line-item-level burn rates for your startup’s human resources budget.

Startups that want to expand into new markets, for example, may find it more cost-effective to hire remote talent in other countries. The average 3-year expatriate assignment [costs an employer $1 million](https://www.shrm.org/topics-tools/news/hr-magazine/agenda-global-hr-management-save-thousands-per-expatriate#:~:text=Research from the NFTC shows,total%2C according to the NFTC.). Local employees can also help companies more efficiently:

  • Analyze competitors and uncover business opportunities in the local market
  • Consider local customer preferences, purchasing power, and buying behavior
  • Recognize cultural norms that may impact business operations and consumer behavior

Similarly, the diversity of perspectives that makes global employees uniquely qualified to help you navigate new markets is likely to broaden the perspective and success of your whole team.

Leveraging Remote Work and Distributed Teams

Let’s say you’ve embraced global mobility and successfully recruited new talent. Now, your teams are distributed in locations ranging from Ecuador to Estonia, without the hassle and expenses associated with opening an office in each location where you’re hiring.

Now, if you need to scale, the already distributed nature of your workforce makes it easier to continue to recruit new talent as well as lean on and learn from the unique perspectives of your global employees.

Distributed teams can also effectively [work around the clock](https://www.atlassian.com/agile/teams/remote-teams#:~:text=Distributed teams can work on,t without some trade-offs.) without eating into individual team members’ free time. So if a customer issue arises in Europe when team members in North America are asleep, the European team can address the issue.

Remofirst Helps Startups Implement a Global Mobility Strategy

As efficient and cost-effective as a distributed, around-the-clock workforce may be, implementing a global mobility strategy does come with challenges.

Onboarding can be difficult to standardize. Tax requirements in the Netherlands are different than those in Mexico. Payroll processes aren’t globally standardized. And some employees may still require visas and work permits.

One way startups can easily navigate these challenges is to partner with an Employer of Record (EOR) like Remofirst. Remofirst can help companies hire employees and contractors in 180+ countries.

Book a demo today to learn more about how Remofirst helps mitigate legal risks and navigate the regulations necessary for building a successful global mobility strategy.