
Is Having Too Much Money Bad for Startups?  - buckpost
http://www.markevanstech.com/2011/11/30/too-much-money/
======
itmag
Here's a question that will probably get me downvoted: what exactly _is_ it
that costs so much money in startups?

Is it servers?

Is it paying awesome brogrammers the exorbitant wages that they oh so deserve?

Is it paying for marketing?

Or something else?

I kind of need to know which one it typically is, since I am planning to start
a startup. If it's wages, then, well, I am going to do real great since me and
my partners are used to working for scraps in Sweden anyway. But if it's
something else then we might be hosed unless we get outside funding.

~~~
rdouble
The main costs are salaries and servers.

~~~
billpatrianakos
I'm honestly asking here because I have some experience writing web apps and I
know your infrastructure (servers and code) need to be able to withstand the
pressure of all the users and you also have to take security into account but
couldn't you just either code the app yourself to start with (or hire someone
for a few grand, maybe $10k) and use something like a VPS for about $5k a year
or less if you use Heroku or so,etching like AWS if you have few users at
first?

I mean $50 million dollars? Really? For something that's massively successful
this makes some sense but when you start to see companies that merely have
ideas or half baked products being valued in these ranges you wonder if you
really need that much money to run. Then you start to wonder, even if the
startup does become wildly popular what do you do about generating revenue?
Many of these guys have no plan to actually make money which makes the
investment baffling. You can always hope to get swallowed up by a bigger
company amd make a buck that way but how likely is it? The market is just
flooded with these things.

I have a great case in point: I'm working for some people to build a social
network for sharing dating stories. It's a real niche but we can't charge for
a freemium model because there's nothing valuable enough to charge for. It's a
decent idea and the site will surely get some use and maybe even become
popular but I doubt its worth investing in. The creators came into this
thinking it would be some internet sensation they'd get rich off of and the
way things are going I'm beginning to think that if we were in Silicon Valley
that maybe a few VCs would be dumb enough to buy into it! I think that's sad.

~~~
rdouble
You don't need much money to start out but the costs add up rather quickly if
you have any significant traction. Heroku is one of the more expensive
options. You will be hard pressed to find anyone good anywhere on the planet
who will work for "a few grand, maybe $10k." $50M is a lot for a half-baked
idea, but why worry about what other people's are doing wrong?

~~~
itmag
Heh, I'm good (and getting better all the time) and I am working for a crap
wage (due to lack of a resumé).

Then again, this is Sweden...

But, the situation is temporary! I'm just a temporarily embarassed
millionaire, and all that :)

------
PaulHoule
We can all think of companies that have gotten $50M in funding and have little
to show for it... Or which have something that you'd think could be so much
better if you could spend that much on it.

"Lean startups" with less money are more focused, but they are less likely to
be doing something really interesting with technology that involves a
sustained development effort. Instead, they pick up some existing technology
and quickly apply it to a market segment. As a byproduct, lean startups look
pretty boring to some people.

~~~
itmag
If they gave $50M to the Open Source Ecology guys, we could start to change
the basic food-production business model of society for the better.

Now THAT is properly leveraged cash. And something that has wide-reaching
implications.

Spending $50M on photo-sharing apps? What the fuck kinda drugs are they
smoking? And may I please refrain from partaking in the second-hand smoke
thereof?

~~~
billpatrianakos
Haha seriously! $50 million for something that requires a VPS and some code to
start? I honestly don't think I could put that much money into a photo sharing
app if I tried. Even if I paid the developer a million dollars to create it, a
million dollars for servers, a million dollars for someone to maintain it, a
million on design, and 5 million on marketing I still have $41 million left.
So do I just pocket that? What's the deal? I'm honestly perplexed and I've
asked before and the answers I get are never able to explain why these
startups need or are even worth such amounts. Everyone pretty much says "yeah,
I don't get it either". Please, I'm being serious, can someone educate us on
how this makes sense?

------
lpolovets
The biggest risk of having too much money is not that you'll spend it, but
that you'll lose your sense of urgency.

When you have 6 months of cash in the bank, you're going to release MVPs,
you're going to be customer-focused, and you're going to be super-driven to
hit the next milestone so that you can get enough additional revenue (or
additional funding) to stay in business. When you have 36 months of cash in
the bank, the urgency can fade very quickly: you end up working on features
without talking to customers because you think the features are useful and you
can afford to be wrong; you end up tweaking things endlessly before launching
because you can afford to be a perfectionist; you end up doing a lot of things
that you shouldn't be doing because you feel like you can afford them. Pretty
soon, you once again have 6 months of funding left, but now your culture is no
longer in the right place to be scrappy and urgent and desperate in the way
that you were before a mega-funding round.

