Cash Flow & Compensation Packages
For an early-stage startup, the most important number is how much cash you have in the bank: if you had zero revenue, how many months could you survive? That's a question every startup should think about every day. This lesson covers Lei Jun's three financial calculations: cash runway, cash flow, and the "compensation package" designed for your best people.
"If you had zero revenue, how many months could you survive?" The safest target is eighteen months, but in practice most can't hit that. Lei Jun's real-world standard: ask yourself — with zero revenue, can you last a year? If you can survive a year, that's already remarkable.
Drag the two sliders to enter your cash on hand and monthly burn rate, and see how long your runway is — along with Lei Jun's assessment.
High Revenue, Still Dead
Companies with no liquidity worries focus on cash flow: how much comes in today, how much goes out, and whether you're net positive or negative by month-end. When you have receivables, payables, and capital projects in progress: you might post outstanding revenue, yet your customers haven't paid — it's all receivables — and in the end your accounts are empty, because you still have nothing. What matters is whether the cash has actually landed.
The Boss Serves the Talent, Not the Other Way Around
How do you negotiate with the best people? Lei Jun's rule is simple: if this person is truly who you need, there's only one principle: do whatever it takes to get them. You can't think "how much cash do I have on hand, can I even afford this?" In a high-tech company, talent is everything. "The boss is always the one who has to bend over backwards; the top engineers are the ones in charge. A boss who can't play that role is not a good boss."
When founding Xiaomi, Lei Jun gave every key person a choice: salary and equity are bundled — you can't take it all. Imagine you've received the offer. Pick a tier and try it out.
Why this system works: At Kingsoft, employees received salary, equity, and bonuses — totaling no less than peers at comparable companies — yet everyone was unhappy. At Xiaomi, compensation is self-selected. Once you've chosen, there's no room for comparison: "your salary is higher than mine, you have more equity than me" — those conversations disappear. Lei Jun considers this the single biggest innovation he made when founding Xiaomi.
A one-person company needs to watch its cash runway even more carefully — nobody is going to raise funding for you. Before quitting to go indie, calculate "savings ÷ monthly expenses" — that's your cash on hand and burn rate.
If it's under 12 months, don't quit cold. Build the product in your off hours first. Lei Jun says a startup that can survive a year is already remarkable — your margin for error will be even smaller.
- The receivables trap applies to freelancers too: enterprise clients typically have 45–90 day payment terms. "I earned ¥30K this month" and "¥30K landed in my account this month" are two very different things.
- Price payment terms into your quotes, or require a partial upfront payment — focus on whether the cash has actually arrived.
- Set yourself a comp package: commit to a fixed amount of client work each month as a "salary" floor, then invest all remaining time into your own product as "equity."
- Set the ratio yourself, then stop complaining: whether it's 30/70 or 50/50, the key is that — like a Xiaomi employee — it's your own choice. Don't then complain that client work is eating into product time.
Think about this every day: with zero revenue, how many months can you survive? Making it a year is already remarkable.
Once at scale, watch cash flow: receivables aren't cash; only what has landed in the account counts.
Hire the best with a "get it done" mindset: don't think "how much cash do I have — can I afford this?"
Compensation is self-selected: bundle salary and equity into a package and let each person choose; because they chose it, there's no complaining and no comparison.
Source: compiled from Lei Jun's public startup lectures