
Ask PG: Correlation between frugality and startup success? - hooande
Have you seen any relationship between the amount of money a YCombinator company spends over the summer/winter and their eventual success?<p>I would guess that it's bad for a startup to blow through their investment money, but how big of a factor is day to day frugality for a startup?
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pg
Good question. There is a huge correlation. People who are cheap are much more
likely to succeed. And not just because their money lasts longer; a frugal
attitude seems to correlate with success.

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xlnt
Maybe this is because excessive spending is caused by not thinking carefully
and precisely about all the factors relevant to the startup, whereas frugality
comes from trying to maximize everything to one's benefit. So even if the
actual money savings doesn't make a huge difference, it's a visible indicator
of doing the right kinds of things.

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pg
That is definitely a large part of it. When Greg Mcadoo from Sequoia spoke at
YC this winter, he said he'd also noticed that frugal startups did better.
When I asked him why, he said probably because frugality was an instance of
focus, and that focus is the key to success in a startup. Overspending =
spending on inessential things, which in turn implies you don't understand
what's essential.

For the same reason, it's bad when founders can't explain what they're doing
concisely.

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maxklein
Frugality is useful, but so many people who are tight with money tend to
underestimate the cost of time. Or the cost of friendship when you refuse to
pay your share. Or the cost of a bad impression when your clothes look old.

Be careful with money, but be careful to also spend money.

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dhouston
like anything else, it's a matter of balance. i used to be a hardcore
bootstrapper and would pride myself on getting something to market on a $x,000
budget, or saving a few bucks on an SSL certificate, laptop, office space, tax
deductions, etc. but the result is i'd waste a lot of time and emotional
energy on shit that didn't really matter to our core business.

but there are two things to remember:

\- your time is a lot more valuable than you think (as others have pointed
out)

\- often money, wisely allocated, (i.e. hiring a couple engineers or investing
in a good work environment, not all-around extravagant spending) can help you
get to market and achieve your goals faster

and since speed is a startup's only real advantage, this is often the
difference between a 1 or 0 outcome.

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jbyers
As a startup, the more you constrain your target audience, how feature-heavy
your product is, and how much money you spend building it, the more likely you
are to find a market you can succeed in -- or fail quickly. Both are positive
outcomes.

But, you have to value your time properly. Otherwise your perception of being
frugal is really just an accounting error.

Our competitors outspend us by orders of magnitude. But we've been frugal and
focused. So while they're worried about raising their series X and lining up
an exit, we're worried about serving our customers better and how to spend our
profits. I wouldn't want to switch places.

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webwright
Yeah, they didn't once ask us where we spent the money. I think the assumption
is "food, rent and hosting".

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fallentimes
How does this work come tax time? From my understanding, you can only write
off hosting, half of food (sometimes) and maybe a part of rent. How did you
guys deal with this?

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SwellJoe
I don't know that we're representative, but, so far, I mostly just wave my
hands around and go, "This sucks." And then leave it for later (meaning we
haven't been doing much with write-offs or expenses on our tax filings).
Pretty much all of my bookkeeping to date has been of the form "put it in a
folder for when we hire a bookkeeper". Luckily, this will be the year in which
we hire a bookkeeper, and I won't have to think about it too much any more,
and I most likely won't end up in jail for not reporting things correctly or
on time (fingers crossed).

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jdavid
on a failed startup of mine, i redid my taxes 3 years after i closed the
company. i received $25k as a refund, and it cost me $4k for the accounting.
good accounting is WORTH IT. had i used that firm in the first place i might
have saved an additional $50k and spent $4k on fiscal advice. Since i self
funded i did a lot of stupid things when it came to managing cash flow and
spending personally for my company. also for being able to better leverage
credit vs opportunity cost on selling stocks and paying employees, i could
have much better used my available margin trading ability that had an interest
cost of only 5%, and with some stocks, waiting till the fiscal reports would
have been worth 20%, which would have kept me in the black personally, vs.
having a burn rate.

oh the things i would do differently, and well, the things i am doing
differently with social helix.

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abijlani
Frugality makes you creative. If you think you have abundant resources then
you will always throw money at the problem. Whereas if you feel your resources
are limited then it will force you to come up with creative solutions to make
the most out of what you have.

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melvinram
As long as you're not being "penny wise and dollar foolish", you're better
off. If you loose time/friendships/customers/reputation (as others have
mentioned) by saving money, you might be being dollar foolish.

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chris123
Definitely good to hear. I am very frugal too. One of my blog postings on the
topic: [http://buzzpal.wordpress.com/2008/02/17/bootstrap-then-
raise...](http://buzzpal.wordpress.com/2008/02/17/bootstrap-then-raise-funds-
ifwhen-necessary/)

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Mistone
YC is frugal with their investments - they give companies just enough to
survive, which motivates the founders to be as frugal as possible.

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redorb
when the investment is micro (10-15k) I suspect (as said in their documents)
that Ycombinator doesn't even keep track of where the money goes.

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SwellJoe
YC doesn't keep track of anything, except the people involved (and even that
is optional).

