
Most startups are spending money too fast.  Slow it down. - benehmke
http://www.humbledmba.com/most-startups-are-spending-money-too-fast-you
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jroseattle
There are so many dynamics at work when it comes to burn rate. At previous
startups in which I was involved, we were expected to increase spending by the
investors. While we wanted to walk it slowly, they wanted us to spend more (on
headcount.) As was expected, the lesson of ten-women-cannot-make-a-baby-in-a-
month was relearned.

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js2
Nine women.

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andrewfrankel
The original poster is correct: human gestation is about 10 months (from
conception). Most women would be aware of their pregnancy for only nine of
those months.

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aurelianito
Human gestation is estimated as 40 weeks counting from the last menstruation.
Conception is 2 weeks after that on average, so the actual time is about 38 *
7 = 266 days.

Dividing by 30, you get 266 / 30 = 8,866666666667 months (almost nine).

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karmajunkie
Oh sweet Jesus, you guys are missing the point in style.

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rokhayakebe
The real problem is startups raise money too early. In my mind there should be
two main reasons to raise money: 1) You have figured out a way to make $1
while spend less, and your data tells you you can do this x times over, 2) You
cannot afford to pay for your servers or dev time due to customer growth. Can
you think of more reasons?

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BrandonM
Since it takes a while to raise money, and since running low on cash can lead
to a crisis, much fundraising is in anticipation of 1 or 2. But you're right,
a lot of status do seem to raise money simply because it's what everyone else
is doing.

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davidhansen
In case #1, it doesn't take a lot of time to raise money. Collateralizing a
bank loan against future revenue is a fairly pretty straightforward process,
and the only "pitch" you need is (possibly audited) documentation of your free
cash flow.

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tzury
a) Bank loan is not an _investment_ , not even a convertible debt.

b) Raising Money takes longer time than one imagine at first, especially at
start when every available second is used for the development. All of a
sudden, in the middle of the code server development, you have to stop your
hacking works and author a 15-18 slides deck for an investor, that alone can
take about a week.

You know, working on the figures, facts, and backing up your thesis. Sending
it over to get reviews, meeting, waiting for answer.

It takes time, and it takes the most expensive time of yours.

You are suddenly stop working for the startup and start working for the
investor(s).

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brezina
Sometimes it is more risky to be less aggressive.

This is a lesson I learned from Vinod Khosla - who by most metrics knows what
he is doing. In nascent markets user acquisition costs rise quickly. In
network effect businesses, switching costs are high.

So should you lower your burn? Not necessarily. Ask yourself just as often
"should I increase my burn."

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freejack
Another way to look at it is "Am I burning effectively?". If you're being
honest, the answer is usually no. Unless your money is free, a lot can be
achieved with no new burn. I like to keep tinder (cash) dry until we've found
a way to be effective and then invest in it heavily.

Put another way, it doesn't matter what your burn is if you've got your
rockets pointed in the wrong directions.

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thibaut_barrere
_Funded_ startups tend to spend money too fast (from what I've seen).

Maybe another reason to bootstrap/self-fund with consulting (what I'm doing
right now).

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trevelyan
"There is no liquidity reason that explains why there's plenty of money
available to seed concepts and not enough money available to A rounds."

Is this true? I'd have assumed that most seed funding is provided by smaller
investors who are investing personal funds while venture capital is using
institutional capital.

We're now year three+ after the general market downturn, which means
deleveraging, wealth destruction and a preference for liquid asset classes
(i.e. look at Treasury yields) shrinking the availability of institutional
capital available for VC funds. And isn't this exactly what we are supposed to
see in this situation? Smaller and knowledgeable investors pump up the bottom
end of the market because it offers a much better return than sticking cash in
anything else?

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idanb
Thanks for posting this. I'm not too knowledgable about the burn rate of
others, but I know that we've kept ours very low. Much of this was motivated
by the fact that we have a serious hardware play, and lots of our seed capital
is allocated towards that.

Regardless, when the problems are interesting and hard enough, we find that
our clamp on spending is a really great recruiting filter. The people that
join the team are truly passionate about our product and technology. It's
painful at times, but spoiled grapes don't taste very good either.

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jeffreymcmanus
Testing unproven hypotheses requires, among other things, money.

Pivoting requires, among other things, money.

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rokhayakebe
No, they require time.

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tomjen3
But time is money.

And I am not trying to be cute here. It is properly the single most common
tradeoff here - you sell your hours for pay at a company, then buy a frozen
pizza because you don't want to make it at home, then clean your own house
because a maid is too expensive but outsource your taxes because they are so
complex and would take you ten times longer to do, you drive a car because
commuting by bike is too slow and the buses don't come by that often.

Time can be brought (heck that is kinda what you are doing with your start-up
because a successful start-up can mean you don't have to work at a job again,
ever).

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rokhayakebe
The difference between time and money is that you have time by default. I
assume most entrepreneurs started to work on their business in their spare
time before having the money to quit and work on it full time.

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hnsmurf
Good Times RIP never did happen. Within a few months of that presentation
people started wondering whether or not we were in a startup bubble.

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jrockway
What's the incentive to slow the burn rate? If the startup blows up, you just
start another one.

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ceejayoz
Isn't "the startup might not blow up" the incentive?

