
About $250K is needed for a company get to sustainability - jprocopio
https://medium.com/@jproco/you-need-250-000-to-start-a-company-886298e8cf7e
======
rmah
This is a silly and myopic article. That sounds harsh but I can't think of a
nicer description. Moreover, the author himself describes doing it for far
less ($10k). I don't mean to be a curmudgeon here, but IMO, I think articles
like this hurt more than help. Tossing out a not low but semi-attainable
number is just clickbait.

In reality the amount of money varies by many orders of magnitude. It can be
as low as $1k (your basic legal costs and some cheap hosting) to as high as
$100mil (you need facilities, manufacturing, warehousing, retail channels,
etc, etc). Each business is different and how much you will need to "get to
sustainability" will vary based on the market niche, strategy, competition,
positioning, market landscape, timing, regulatory burdens, etc, etc.

Hell, even for something fairly well defined business concept like "start a
bar in a medium-sized midwestern US city" the costs can vary by an order of
magnitude depending on the specifics.

Better advice: research your market and plan out what you think you'll need.
Estimate the various expenses that lead to revenues, including the time-delays
between when you spend and when you receive funds. Then do it again for a
less-than-rosy scenario. Finally accept that your guesstimate is probably
wrong and go for it anyway!

~~~
jprocopio
Actually I didn't say I did it for $10K, I said I'd DO it for 10 dollars.

I get you. I'm talking about the difference between calling something a
company and building a sustainable company from zero. $250K is arbitrary
because any number would be arbitrary, as you note, but it's also a good
minimum baseline to shoot for.

Any one of the caveats I discuss in the article could change the number or how
that money is aggregated or how long it takes to spend it.

~~~
rmah
_In between Automated Insights and my current startup Spiffy, I built Teaching
Startup with $10,000 out of my own pocket, 60 hours a week of sweat equity
[...]_

Past tense implies that you did it (and it's awesome that you did)...

More to the point, if "$250k is arbitrary because any number would be
arbitrary" then it's not a good minimum baseline to shoot for, it's just a
random number. Better to actually think through how the business will work,
what resources you can draw upon, what your expenses will be, how your
revenues will come in, etc. And then estimate your financing requirements
based on the specifics of the business.

~~~
jprocopio
Ah. I see the distinction now. That company failed though, so $10K was not
enough, that was stuck in my mind. Thanks for the tip.

------
beatgammit
I feel like this is focused on companies that are designed to scale quickly
and eventually get huge. There are a wide array of companies that don't want
to scale that quickly (e.g. lifestyle businesses, like a service business). OP
basically said it's what's necessary to get to series A funding, but if you
don't particularly care about getting venture capital, then that figure is
irrelevant.

I think a better title would be "$250k is needed to get to series A funding",
since that's basically what the article it about, and many (most?) startups
will never seek funding outside bank loans and whatnot.

~~~
scarface74
So much this. I envy companies like Fog Creek Software that were bootstrapped
and he can run the company however he wants - profitably.

------
vinceguidry
The price has gone down it seems. A few years ago I'd estimated it at a
million, but acknowledged that technology could be a multiplier. So maybe a
quarter million isn't that far off my estimate. But $250K adjusted for
individual wizardry does lay bare just how daunting that climb is.

Information technology is wizardry, but it's the upstart in a land where
finance has basically been Sauron for hundreds of years. Engineers believe
they can beat finance by working smarter, by learning more powerful spells and
correspondences. It fails more often than not.

When it does work, watching successful startups slowly sell their soul to the
devil by incorporating finance strategies is a bit of a hobby of mine.
Invariably they take their competitive advantage, the goodwill they've built
up with their customers / workers, and commoditize it, making it as close to a
negotiable financial instrument as possible.

Uber drivers are no longer people, they are financial resources with dollar
values. Uber sold them the vision of a life bounded only by your ambition to
enable it to reach for the brass ring, then clawed it back once it had it out
of sheer, pure greed.

People who freely gave their time and attention to make Facebook something
more interesting and mainstream than existing social networks which at the
time seemed to be trending inexorably towards ever more niche audiences found
that time and attention farmed, commoditized, and sold.

Watching new money slowly morph into old money, the moral adventures of the
new demigods, as well as the public's unholy fascination with them, better
than any Marvel movie could possibly be. Better, because I can participate in
the morality play just by opening up my phone and calling an Uber.

These truly are interesting times.

~~~
chosenbreed37
> People who freely gave their time and attention to make Facebook something
> more interesting and mainstream than existing social networks which at the
> time seemed to be trending inexorably towards ever more niche audiences
> found that time and attention farmed, commoditized, and sold.

I assume you're talking about the users. If so you could argue that they were
given a service free of charge. That service enabled them to fulfill some
need/whim. They're weren't necessarily interested in making Facebook better.
They just wanted to use it for what it could do for them. In return Facebook
users their data.

You're right though. These are interesting times.

~~~
vinceguidry
> If so you could argue that they were given a service free of charge.

Sure. And so are Uber drivers. But the only real way the service continues to
be of value is if the value proposition remains the same. Facebook and Uber
made a promise, maybe not explicitly, but implicitly, that the service would
continue to offer the same value on Year 10 as it did on Year 1.

And those early adopters, those without which the companies could not have
gotten as rich as they have gotten, bought that promise, hook, line, and
sinker. They probably didn't realize that the platform they were building, the
devil whose promises they bought, would turn into the monster that it has.
Heck, some probably still busy themselves defending that monster as we speak.

To make this clearer, the trade for the early adopters isn't just for what
those early adopters immediately got for it, but also for a promise. Without
the promise, nobody would bother. This is what makes a startup so hard to get
off the ground in the first place. I have to either not care about the money
or really buy into the promise in order to fund a Kickstarter. I have to trust
your company's SaaS offering before I'll add it as a dependency to my own
business or my own life. Without a promise of future value, no company would
ever get off the ground.

Everybody is complicit, some more than others. That's what makes a morality
play so riveting, you are participating just by watching it. When I call an
Uber, I sell a little bit of my soul to make my life a little bit more
convenient. The nature of technology and modernity is such that you cannot
avoid making such choices. All you can do is make them anyway and hope you
don't get screwed.

------
owens99
This is definitely a low-end estimate. To build a good product takes a team of
four senior people (2 back-end, 1 front-end, 1 UX) 6-12 months including the
iteration and modifications. Let's say the average salary for a senior person
is $120k / year + health insurance and benefits, office, etc. We're already at
$240k for 6 months or $480k for 12 months NOT INCLUDING health insurance and
benefits.

Don't tell me that a dev shop can do it much faster/cheaper. I've worked with
a few of the TOP dev shops out there and you always get more bang for your
buck with FTE who have a vested interest in what you are building.

We haven't even discussed sales and marketing yet.

This is just the cost of shipping something that works, not the cost of
getting to Product/Market Fit.

All-in I would say getting to Product/Market Fit can be anywhere from $1M -
$6M for SOFTWARE depending on the complexity of the new market.

~~~
scarface74
I would never say that having less people can do it _faster_ but probably
_cheaper_. Spit balling here, but say four people could do it in 6 months (the
aggressive end of your range), what if two people - one UX and one full stack
developer took 12 months worse case. I would think:

\- While I don't know many "full stack developers" who are good at UX, I know
plenty that can do front end _development_ and back end _development_ pretty
well. I know a few that can go all the way down and create a decent cloud
infrastructure with databases and do devops (raises hand).

\- By combining tasks, you don't have to double pay health insurance and
benefits for four people.

\- Once you pay over the Social Security maximum, you don't have to pay the
6.2% employer side of Social Security, saving a little more money if you pay
one or two superstars.

\- The whole "Mythical Man Month" thing starts to work in your favor the less
communication overhead you have between developers.

\- Do most sites have a front end UX complicated enough that you need a full
time UX guy at first? Can you outsource that?

~~~
deegles
A recurring theme on HN is how difficult it is for experienced technical
people to identify talent and hire them. If you unlock the secret for
identifying even a mildly competent UX/full stack dev combo and then
convincing them to work on a startup idea we’re all ears.

~~~
scarface74
I can go through my LinkedIn connections and find a couple dozen full stack
developers with years of experience that also know how to optimize the data
tier for a small to medium size business.

I know fewer that have dev ops experience, they might have developed it over
the years.

I know only one who is a full stack developer who has all of the qualities
above and have a deep understanding of cloud architecture - that’s me.

Most developers I know haven’t focused on cloud architecture the way that I
have. They became team leads after a few years. They moved up in salary by
becoming leads. I’m on my way to being an overpriced consultant.

I don’t know but a few UX people.

------
icedchai
It depends on the type of company.

For software, 250k won't get you much in terms of engineering resources on
either of the US coasts: maybe 2 people for a year, plus cloud costs and
overhead... _maybe._

If you're outsourcing everything, possibly this could work... Though probably
not if it's your first try: you really need to know how to manage your outside
folks to avoid getting fleeced.

Then once you build the product, you have to market and sell it. The resources
and time required is often underestimated.

I'm not convinced.

------
black6
You need two piles of money to start a business (and let’s look generally
outside the box of a tech startup):

1: the money needed for initial purchase of equipment, licensing, real estate,
etc.

2: three-years worth of operating expenses.

I have experience starting a brewery and two Montessori schools, and Number 2
is definitely the hard one.

~~~
jprocopio
Yes. A lot of people miss #2 and that's my point. Like I said, my first answer
was I can start a company for ten bucks. Great. I've started a company. To
truly stand it up and make it last, whether it's technology or gardening,
takes time and money, all of it equivalent to about $250K. Whether that comes
from investment, sweat, or out of pocket is what I'm elaborating on. Thanks.

------
adamqureshi
I have a tiny marketplace start up in the EV space and a family member wants
to invest $60k. I don't need the money BUT i am at a point where i need to
build v2 and add more features to make more sales with different offers. After
reading this article i am not sure if it applies to my situation. I don't know
if the family member's $60k investment will be enough and not sure what his
expectations are in terms of ROI and if i should just wait and ask for $250k
to build v2. I have a friend who can build it at a reduced rate. Kinda
confused on what direction to take. The comments are very useful.

~~~
jprocopio
If you can plan on how you're going to spend that $60K and those plans will
get you to a new level of revenue that will provide a good return on the $60K
and you're not giving up more of the company than you're comfortable with,
then consider the investment.

What I'm saying here is that deciding to take investment should be weighed on
the merits of the investment itself. It's part of the equation, not the whole
equation.

~~~
adamqureshi
Thank you. I will take any advice i can get. I have to make a decision like
this week. ;-) merit of his investment is he expects an ROI or a piece of
sales OR both. I'm not sure i understand the part of the equation vs the whole
equation. :-(

~~~
jprocopio
So if you think of $250K as the cost to get the business to sustainable, then
$60K is part of it, a bunch of your own money is part of it, and your sweat
and and anyone who works for you for equity is another part. Think about time
too. It could be $250K up front sourced by investors, or $250K over 3 years
combining all the sources. Or somewhere in between. There is nuance. Good
luck!

~~~
adamqureshi
Thank you! I really appreciate it.

------
slap_shot
It depends entirely on the founding team the product you're trying to achieve,
but $250K seems about right. I started a SaaS company last year and have grown
it to a mid six-figure run rate. Even though it worked out, it wasn't the
right way to do it. If I could go back in time and pick a dollar amount of
raised day one, it's probably $350K.

Startup outcomes are fairly binary, so just raise the money you need to
operate correctly as soon as you can.

------
LaserToy
I don’t think this number is reasonable if you are going for a tech solution,
especially if you trying to build something fairly complex. Less then a half
of what strong SWE is paid in Silicon Valley... or almost total of one who
works in a wrong place, or waits for stocks.

That is why startups can’t afford strong engineers, unless they want to invest
their time for a chance.

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Phenix88be
With that amount of money, I can live 100 years. Housing, insurance, food,
every basic need covered (and I ll own my house for goods, no loan).

Why the hell would I start a company ?

~~~
icedchai
You're saying you can live for $200 USD/month. Where are you located?

~~~
Phenix88be
I did the math "a bit" quickly, but my point is that you can live on that
money for a long time if you save it well.

I m from Belgium. If you own your house here, 700€ is enough for a month, and
with 100.000€ you can have a little house if you can afford to live far from
the big cities. I wont do much with 700€, but I will not starve. You can even
save money if you have a garden and get free food from it.

It isn't sustainable I know that. But if you have that amount of money, why
the hell start a company with the stress and the I don't know, 90% chance of
losing your money ? Get a part time job and enjoy your life...

------
LeicaLatte
YC invests about 120k at a minimum, doesn't it?

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alexpetralia
Non-paywalled link: [https://outline.com/2b9gJa](https://outline.com/2b9gJa)

~~~
jprocopio
This is important to me because I'm pretty sure I did include the non-
paywalled link and I always do.

[https://medium.com/@jproco/you-need-250-000-to-start-a-
compa...](https://medium.com/@jproco/you-need-250-000-to-start-a-
company-886298e8cf7e?source=friends_link&sk=9fbcc16a6994db38cf8ddfc99c31111b)

This is what Medium calls a "friend link" and it should work for anyone
whether a Medium member or not.

~~~
alexpetralia
I definitely receive this message:

"You’ve reached the end of your free member preview for this month. Become a
member now for $5/month to read this story and get unlimited access to all of
the best stories on Medium."

~~~
jprocopio
So support came up empty on why that happened:

"I can confirm this is the correct friend link. If your readers access the
story via this link, they will always be able to view it, even if they are out
of their free monthly previews. There aren't really any limits on this."

