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Costs and Startups - Advice for your CFO (markmaunder.com)
13 points by mmaunder on Nov 1, 2009 | hide | past | web | favorite | 6 comments

This is a great post. Protecting the modest amount of money we're making now as an early stage start up is extremely important. The one thing this post didn't talk about was why it's so important to be so frugal. Having financial discipline specifically allows a start up to stay independent in times of difficulty. If we do hit rough times and the revenue dips or stops all together, we need to be able to get back on our feet without having to take on any "I hate this but I need it" work. We make a point of avoiding red-flag clients, unfavourable RFPs, banner-ads for agencies that don't get technology. I guess my point is, that financial failure isn't what's going to destroy a start up. It's the fact that in times of need start ups tend to lower their standards and accept work that inevitably makes us hate our jobs and quit. Everything from keeping salaries low, to squeezing money out of hardware, to limiting the amount we spend each month on books, travel, and office supplies helps us build up a war chest for hard times. And the reason the war chest is handy isn't because we need it to survive - getting work isn't that hard - it's because we can wait for the work that we love to do.

I agree, but would add that a frugal company will also beat a less frugal competitor (or potential competitor) - because they can advertise more, pay better etc. And when you are more frugal than your competition, you can win any competition on price, all other things being equal.

I'd also suggest that VC's will always fund a frugal company over their rival(s) - although that's somewhat hypothetical as I've never accepted outside funding.

In addition to raiding your cluster for the computational equivalent of the pennies in the couch, you can also charge money for whatever it is that you're serving 30 million times a day. This is almost magical in its ability to make it possibly to trivially afford whatever hardware/bandwidth/etc capacity you need.

This is a dangerous approach. Sure, watch your meagre cash resources with eagle eyes, but you should really beware of false economies. Cash is a tight resource for any start-up, but there's one resource that's even tighter: time.

If you have a choice between spending $10 or spending 10 hours, don't be silly. Spend the $10, and keep the 10 hours focused on something that provides more than $10 of value to you (like making a sale).

Don't forget though that spending money costs time. You need to spec, buy, deploy and manage those new servers or employees. And when you decide you need more money to trade for time, you need to pitch, close and maintain the new investor relationship. Of course at that point you're actually trading equity for time.

In the end, it's a balance. You need keep track of (and understand) the fluctuating exchange rate between time and money as your business evolves.

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