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!
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.
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.
- legal fees
- an accountant
- setting up a domain with a WordPress landing page and an email provider.
- computer equipment (which you probably already have)?
Landing page alone will get you nowhere real quick.
You might get a lucky client or a few by posting samples. Maybe. But would that even be sustainable? It would you just end up hired and not really a consultant?
Network effects are also unreliable on a small scale. Plus networks need a bit of care that takes time and work.
If you have no network and only $250k and skills you think that are marketable, you'll have a good chance of that 250k being gone and you having done nothing but talking with 'potential clients' which end up in your pipeline at 30-60%. With your runway gone, you have no time to close these prospects and no money coming in. I see it happen so often...
In the US or countries like it. We grew (a few times I might add with different companies) to a substantial size (millions euros of profit / year) without any lawyer interaction at all.
And you can easily (again, I speak for where I am from, so YMMV) grow to millions of revenue without an accountant. You probably wouldn't because it's cheap until you get to many employees and larger amounts of rev or unknown business territory, but you can and people do.
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.
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.
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.
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.
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.
- 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?
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.
There's all kinds of reasons why the same thing will cost wildly different amounts of money (e.g. the cost of a good back-end engineer depending on your location), and you can get a lot of work without paying the full amount in cash, but you still need to budget that you'll need to obtain x FTE-years.
Quoting the article, "I worked for free until the founder could pay me." ... you can't rely on hopes that you'll find a good deal like this, so you anyway need to budget money or effort or time (to find such people) for this amount of work instead of just saying $0.
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.
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.
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.
Startup outcomes are fairly binary, so just raise the money you need to operate correctly as soon as you can.
That is why startups can’t afford strong engineers, unless they want to invest their time for a chance.
Why the hell would I start a company ?
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...
If you want to start a company to make money then it's probably a bad decision. Become an SV software engineer or a wallstreet banker. You can become a skilled trades-person and make 6 figures within 5 years.
Starting a company lowers the floor and raising the ceiling on your potential outcomes. It is a giant risk.
> Become an SV software engineer or a wallstreet banker
I don't know what a "SV" software engineer (non english native, sorry if it's obvious). I m a Web developer from Belgium and I make just a little more money than a factory worker.
It's not the US here...
Similarly with finance, law, medicine. There are many high paying jobs that guarantee you to have a very comfortable life. Entrepreneurs have the opposite. Sure you could be worth 100s of millions but most likely you will lose your money. Or work twice as hard to provide yourself half the salary.
Some people that try to start a company do it for that reason. Most of those people with that motivation fail miserably.
The viewpoint that entrepreneurship is the domain of the greedy pigs that must be sneered at is viewpoint of the entitled, supremacist, antimeritocracy failed old world aristocratic elite, the modern anarchists, and the stalinists.
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