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Most startups are spending money too fast. Slow it down.
- thibaut_barrere 15y agoFunded startups tend to spend money too fast (from what I've seen). Maybe another reason to bootstrap/self-fund with consulting (what I'm doing right now).
- deleted 15y ago[deleted]
- danishkhan 15y agoAgreed. It is very easy to spend money when it's given to you, but if you are bootstrapping you are definitely a lot more mindful of how much cash you have to spend. However, it really depends on what you are doing. Some industries such as bio-tech basically require you to have a lot of money to even begin prototyping.
- jeffreymcmanus 15y agoTesting unproven hypotheses requires, among other things, money. Pivoting requires, among other things, money.
- rokhayakebe 15y agoNo, they require time.
- tomjen3 15y agoBut time is money. And I am not trying to be cute here. It is properly the single most common tradeoff here - you sell your hours for pay at a company, then buy a frozen pizza because you don't want to make it at home, then clean your own house because a maid is too expensive but outsource your taxes because they are so complex and would take you ten times longer to do, you drive a car because commuting by bike is too slow and the buses don't come by that often. Time can be brought (heck that is kinda what you are doing with your start-up because a successful start-up can mean you don't have to work at a job again, ever).
- rokhayakebe 15y agoThe difference between time and money is that you have time by default. I assume most entrepreneurs started to work on their business in their spare time before having the money to quit and work on it full time.
- InclinedPlane 15y agoThe fewer customers one has the less money it costs to pivot. A lot of tiny companies pivot like crazy with very low cash flow.
- rokhayakebe 15y agoThe real problem is startups raise money too early. In my mind there should be two main reasons to raise money: 1) You have figured out a way to make $1 while spend less, and your data tells you you can do this x times over, 2) You cannot afford to pay for your servers or dev time due to customer growth. Can you think of more reasons?
- lowglow 15y agoAmen.
- BrandonM 15y agoSince it takes a while to raise money, and since running low on cash can lead to a crisis, much fundraising is in anticipation of 1 or 2. But you're right, a lot of status do seem to raise money simply because it's what everyone else is doing.
- davidhansen 15y agoIn case #1, it doesn't take a lot of time to raise money. Collateralizing a bank loan against future revenue is a fairly pretty straightforward process, and the only "pitch" you need is (possibly audited) documentation of your free cash flow.
- tzury 15y agoa) Bank loan is not an investment, not even a convertible debt. b) Raising Money takes longer time than one imagine at first, especially at start when every available second is used for the development. All of a sudden, in the middle of the code server development, you have to stop your hacking works and author a 15-18 slides deck for an investor, that alone can take about a week. You know, working on the figures, facts, and backing up your thesis. Sending it over to get reviews, meeting, waiting for answer. It takes time, and it takes the most expensive time of yours. You are suddenly stop working for the startup and start working for the investor(s).
- mattmanser 15y ago
- jroseattle 15y agoThere are so many dynamics at work when it comes to burn rate. At previous startups in which I was involved, we were expected to increase spending by the investors. While we wanted to walk it slowly, they wanted us to spend more (on headcount.) As was expected, the lesson of ten-women-cannot-make-a-baby-in-a-month was relearned.
- js2 15y agoNine women.
- tomjen3 15y agoIf you can do it with ten women, you still win.
- aurelianito 15y agoHey! He was taking into account the overhead of the distributed algorithm ;).
- andrewfrankel 15y agoThe original poster is correct: human gestation is about 10 months (from conception). Most women would be aware of their pregnancy for only nine of those months.
- aurelianito 15y agoHuman gestation is estimated as 40 weeks counting from the last menstruation. Conception is 2 weeks after that on average, so the actual time is about 38 * 7 = 266 days. Dividing by 30, you get 266 / 30 = 8,866666666667 months (almost nine).
- karmajunkie 15y agoOh sweet Jesus, you guys are missing the point in style.
- deleted 15y ago
- jrockway 15y agoWhat's the incentive to slow the burn rate? If the startup blows up, you just start another one.
- ceejayoz 15y agoIsn't "the startup might not blow up" the incentive?
- hnsmurf 15y agoGood Times RIP never did happen. Within a few months of that presentation people started wondering whether or not we were in a startup bubble.
- brezina 15y agoSometimes it is more risky to be less aggressive. This is a lesson I learned from Vinod Khosla - who by most metrics knows what he is doing. In nascent markets user acquisition costs rise quickly. In network effect businesses, switching costs are high. So should you lower your burn? Not necessarily. Ask yourself just as often "should I increase my burn."
- freejack 15y agoAnother way to look at it is "Am I burning effectively?". If you're being honest, the answer is usually no. Unless your money is free, a lot can be achieved with no new burn. I like to keep tinder (cash) dry until we've found a way to be effective and then invest in it heavily. Put another way, it doesn't matter what your burn is if you've got your rockets pointed in the wrong directions.
- idanb 15y agoThanks for posting this. I'm not too knowledgable about the burn rate of others, but I know that we've kept ours very low. Much of this was motivated by the fact that we have a serious hardware play, and lots of our seed capital is allocated towards that. Regardless, when the problems are interesting and hard enough, we find that our clamp on spending is a really great recruiting filter. The people that join the team are truly passionate about our product and technology. It's painful at times, but spoiled grapes don't taste very good either.
- trevelyan 15y ago"There is no liquidity reason that explains why there's plenty of money available to seed concepts and not enough money available to A rounds." Is this true? I'd have assumed that most seed funding is provided by smaller investors who are investing personal funds while venture capital is using institutional capital. We're now year three+ after the general market downturn, which means deleveraging, wealth destruction and a preference for liquid asset classes (i.e. look at Treasury yields) shrinking the availability of institutional capital available for VC funds. And isn't this exactly what we are supposed to see in this situation? Smaller and knowledgeable investors pump up the bottom end of the market because it offers a much better return than sticking cash in anything else?