2 ms·

Ask HN: I need help 'guessing' initial startup cost

2 points by donohoe 16y ago

I'm only asking for napkin level calculations here, so... Imagine you're putting together a startup for a new magical product/service. You know you will need experienced 3 engineers (lets say 5 years experience covering web, mobile apps, backend), 1 designer. Add 1 for business dev/marketing/ceo'ish responsibilities. Assume that these people are highly qualified. Now we need to factor in medical, dental, 401K, office space, admin, laptops/desktops/devices/licenses, server space, business card, legal, expected travel expenses and such... I know there's more I've left out... Presumably it would need funding for at least 1 year (aim for 3?)? Also assume that the into toon is to launch a service/product within the first 9 to 12 months which marks the beginning of a revenue stream. Bearing in mind I only need an estimate and I recognize that there are a million things that factor into the true and final cost and I won't hold anyone to this... How much funding would you need?

joystickers 16y ago
Is this a joke?
- donohoe 16y ago
  No. This is probably a dumb question to many people here. I'm asking as I have no idea, because all I know is how to code and build things and nothing about startups or business. However others here have deep knowledge on the subject. So I'm asking for help and not cynicism.
  - joystickers 16y ago
    I apologize if I offended you. First thing I would do if I were you would be to check out resources like Mixergy, This Week in Startups, and read Rework by 37Signals. I know that isn't a direct answer to your question, but that's because I think you're asking the wrong question. Can you elaborate on what you want to build and why you need a fleshed out company right off the bat?
    - donohoe 16y ago
      I wasn't offended, I just wanted to be clear to you and anyone else that I wasn't kidding and I realize the naivety it carries in some ways. I cannot elaborate on the product.
  - fragmede 16y ago
    > Now we need to factor in medical, dental, 401K, office space, admin, laptops/desktops/devices/licenses, server space, business card, legal, expected travel expenses and such... It reads like a joke because of the above list. Those are luxuries. You presumably already have a personal laptop, and a linode instance is quite affordable. Start there. If you haven't already read pg's bit about ramen profitability, you should: http://www.paulgraham.com/ramenprofitable.html http://www.paulgraham.com/ramenprofitable.html
    - donohoe 16y ago
      Ok, so I wasn't clear. I'm not talking about bare-bones. I am talking about 'luxuries' as a means to get developers. I'm also talking about market rate salary and benefits since to get experienced devs, the types that might have families, mortgages to pay. I'm not talking about 3 guys sleeping rough in a studio, coding to all hours. I realize many/most startups don't start with the needs I am describing. Also, I'm also just looking for a completely rough-guess answer. If you think it's $1 million then fine, if you think it's $500 million or 2 shekels, great too. Just add a little insight into your quote and it would be appreciated.
answerly 16y ago
As others have mentioned below, there are probably at least one or two intermediate steps between where you appear to be now (earliest stages of business planning)and being in a position to raise a significant financing round. You'll need a product and probably some initial traction with users and, hopefully, revenue. That said, you can calculate a rough monthly burn rate by adding together the estimated monthly salaries of the employees you referenced in your post and increase that number by 130-150%. This roughly accounts for all the operating expenses. If you need guidance on salaries try checking out resources like salary.com. You'd probably want at least 18 months of cash in the bank. This gives you a year to execute and six months to focus on sustainable profitability and/or additional later stage financing. So, monthly burn rate x target number of months of cash in the bank is your target financing amount. Hope this helps.
- donohoe 16y ago
  This is clear and exactly what I needed. Much appreciated.
thewordpainter 16y ago
there's all kinds of factors that could affect that answer. for example, we have a core team of four with five additional interns at the moment. our cost? zero. we're as bootstrapped as it gets, and nobody has taken any pay to date...but we're based in athens, ga where the cost of living is minor. i would recommend considering 100% of a pie and how much each member you described would be worth. from there, be flexible & generous with your equity as you're filling out the team. equity is your biggest asset at the stage you're at. hope that helps!
rfrey 16y ago
Sounds a bit like a question you'd get out of a time capsule buried in 1998. But I guess you might have such a kick-ass idea that you have investors queueing up to fund it, or you might be rich and willing to fund yourself, and just want to budget. Figure 200k/person for the first year including equipment, overhead of hiring, etc. You'll need to allocate at least 20% of your company's equity for stock options. Server space is cheap and competent engineers will set you up with something on a "pay as you need it" basis. That said add $2000/month for kicks and giggles. Legal is a black box. Are you doing a new kind of game? Around 50k for trademarks, etc. Going after the music companies? One trillion dollars. Office: where are you? San Francisco? $1500-2k/month. Kansas City? They'll pay you to take the space if you throw in a little dance routine on Friday afternoons. Travel - Are you sending your sales guy to Europe twice a month? Having board meetings in Aruba? I guess you can do a Kayak search as well as we can. So if you're going to hire everyone and start building toward the Big Release, which is not recommended by the way, figure 1.5 million for the first year. If you read Steve Blank and Eric Reis' stuff you could probably do it on $200k with higher odds of success, but you'd miss out on hiring a bizdev/marketing guy, shopping for dental plans, etc.

2 points by donohoe 16y ago

joystickers 16y ago

Is this a joke?

donohoe 16y ago
No. This is probably a dumb question to many people here. I'm asking as I have no idea, because all I know is how to code and build things and nothing about startups or business. However others here have deep knowledge on the subject. So I'm asking for help and not cynicism.
- joystickers 16y ago
  I apologize if I offended you. First thing I would do if I were you would be to check out resources like Mixergy, This Week in Startups, and read Rework by 37Signals. I know that isn't a direct answer to your question, but that's because I think you're asking the wrong question. Can you elaborate on what you want to build and why you need a fleshed out company right off the bat?
  - donohoe 16y ago
    I wasn't offended, I just wanted to be clear to you and anyone else that I wasn't kidding and I realize the naivety it carries in some ways. I cannot elaborate on the product.
- fragmede 16y ago
  > Now we need to factor in medical, dental, 401K, office space, admin, laptops/desktops/devices/licenses, server space, business card, legal, expected travel expenses and such... It reads like a joke because of the above list. Those are luxuries. You presumably already have a personal laptop, and a linode instance is quite affordable. Start there. If you haven't already read pg's bit about ramen profitability, you should: http://www.paulgraham.com/ramenprofitable.html http://www.paulgraham.com/ramenprofitable.html
  - donohoe 16y ago
    Ok, so I wasn't clear. I'm not talking about bare-bones. I am talking about 'luxuries' as a means to get developers. I'm also talking about market rate salary and benefits since to get experienced devs, the types that might have families, mortgages to pay. I'm not talking about 3 guys sleeping rough in a studio, coding to all hours. I realize many/most startups don't start with the needs I am describing. Also, I'm also just looking for a completely rough-guess answer. If you think it's $1 million then fine, if you think it's $500 million or 2 shekels, great too. Just add a little insight into your quote and it would be appreciated.

answerly 16y ago

As others have mentioned below, there are probably at least one or two intermediate steps between where you appear to be now (earliest stages of business planning)and being in a position to raise a significant financing round. You'll need a product and probably some initial traction with users and, hopefully, revenue. That said, you can calculate a rough monthly burn rate by adding together the estimated monthly salaries of the employees you referenced in your post and increase that number by 130-150%. This roughly accounts for all the operating expenses. If you need guidance on salaries try checking out resources like salary.com. You'd probably want at least 18 months of cash in the bank. This gives you a year to execute and six months to focus on sustainable profitability and/or additional later stage financing. So, monthly burn rate x target number of months of cash in the bank is your target financing amount. Hope this helps.

donohoe 16y ago
This is clear and exactly what I needed. Much appreciated.

thewordpainter 16y ago

there's all kinds of factors that could affect that answer. for example, we have a core team of four with five additional interns at the moment. our cost? zero. we're as bootstrapped as it gets, and nobody has taken any pay to date...but we're based in athens, ga where the cost of living is minor. i would recommend considering 100% of a pie and how much each member you described would be worth. from there, be flexible & generous with your equity as you're filling out the team. equity is your biggest asset at the stage you're at. hope that helps!

rfrey 16y ago

Sounds a bit like a question you'd get out of a time capsule buried in 1998. But I guess you might have such a kick-ass idea that you have investors queueing up to fund it, or you might be rich and willing to fund yourself, and just want to budget. Figure 200k/person for the first year including equipment, overhead of hiring, etc. You'll need to allocate at least 20% of your company's equity for stock options. Server space is cheap and competent engineers will set you up with something on a "pay as you need it" basis. That said add $2000/month for kicks and giggles. Legal is a black box. Are you doing a new kind of game? Around 50k for trademarks, etc. Going after the music companies? One trillion dollars. Office: where are you? San Francisco? $1500-2k/month. Kansas City? They'll pay you to take the space if you throw in a little dance routine on Friday afternoons. Travel - Are you sending your sales guy to Europe twice a month? Having board meetings in Aruba? I guess you can do a Kayak search as well as we can. So if you're going to hire everyone and start building toward the Big Release, which is not recommended by the way, figure 1.5 million for the first year. If you read Steve Blank and Eric Reis' stuff you could probably do it on $200k with higher odds of success, but you'd miss out on hiring a bizdev/marketing guy, shopping for dental plans, etc.