When I was 16 I asked my dad for a car because thats what 16 year-olds do in America, and because even though I …
When I was 16 I asked my dad for a car because thats what 16 year-olds do in America, and because even though I went to a public high school everyone and their mom drove a BMW or a Bentley. My dad put the kibosh on my dreams of being a teenage driver. To him a car was a luxury and he didn’t want me succumbing to the evils of peer pressure. Trying to salvage what little pride I had left, and not stooping to riding the bus I used my powers of resourceful and friendliness to bum rides off of friends for 4 years! 10 years later I thank my dad for the valuable lesson in being scrappy.
Burning and Earning
As a startup founder, I’m obsessed with burn rate and runway. Bootstrapping only heightens your awareness. But taking in money doesn’t mean you have a free ride to spend as we you please. I actually started to loose sleep once I knew I had someone else’s hard earned savings at stake. I’ve also witnessed a lot of startups that wished they had raised less money because of the pressure associated with a large round, such as growing a team quickly, ramping up the number of users, and getting to revenue. Is there a happy balance?
I’m of the camp that every founder should invest some of their own personal funds into their venture. The exact dollar amount is up for debate and depends on an individual’s comfort level and lifestyle. A founder devoting time alone isn’t enough of a contribution, because to me money signifies an opportunity cost, as in I could be making money but I’m choosing to hold off and actually use my savings because I believe what I’m creating is valuable. Also putting in your own money you become more thoughtful on the things you spend.
Scrappy Stack
With technology costs reducing startups can build a prototype on a shoestring budget. At my current startup I’m using Heroku to host our web app, Google Apps for e-mail, mySQL for our database, Gmail for our mail server (but switching to MadMimi soon), GitHub for source code repository, and Pivotal Tracker for bug and project tracking. I did purchase licenses for RubyMine bought a few external monitors (refurbished), desks and chairs from Ikea, and I try to do a team lunch/dinner once a week at the very least I’ll make dinner for my team. I also don’t balk at the thought of sending my developers and designers to conferences. When you’re working on a small team you need a flow of new ideas and creativity, what better place to acquire them than at a conference. Its also a great place to scout and recruit talent.
To me office space is a luxury. For the past 8 months we’ve been working out of my apartment to cut down on costs, and while most people would be opposed to the invasion my startup has been my personal life for most of this year. But there does come a time when you need office space. For us, it was when we realized that we needed to start doing more usability testing, and having a designated space to hold meetings with customers and investors.
On the issue of hardware, I’ve been dreaming of the day I can buy each of my developers and designers their own machine. But its just not in the budget right now.
What do I spend money on?
Employees and legal fees. Its hard to find and retain talent. Anyone who has tried to recruit knows this. In a startup time, culture, and creativity drive the creation and success of a product and company, and you can’t expect success if you’re both a taskmaster and slavedriver. Sweat equity is nice to have, but in a town where you’re competing with startups that are funded by VCs, six-figure salaries of techies, and high rent and gas prices you have to at least handle basic living expenses.
Just like a household you will need an emergency fund. To handle calamities like machines breaking or even just being able to do something nice and relaxing with your team once in a while. A startup isn’t a death march nor is it something you can flip instantly. It takes time to build a team and product. You also want to spend on little things like running simple marketing campaigns, networking events, conferences, books, or even experimenting with new technologies.
A startup is after all an investment. As a founder it’s an investment in your potential to build something and to direct your career. There’s no need to bet your life savings on it, but realize like an investment you have to know what you’re getting into, what the hidden fees are, budget and cut extraneous costs, project performance, and be willing to take bear a certain amount of risk for the potential rewards.
