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> HR - $1,374,695.06 - or 52% of total costs Why would it be unusual for the majority of costs to be salaries for a company that sells services and develops pr

> HR - $1,374,695.06 - or 52% of total costs Why would it be unusual for the majority of costs to be salaries for a company that sells services and develops products? This has nothing to do with the "talent war." That's just the way things work. What else would they be spending money on? > AWS - $394,588.35 - or 14% of total costs How much higher would that number have been had Everpix built out their own infrastructure?

mbesto 13y ago
My points weren't criticisms, they were merely highlighting the sentiment that comes from outside "the bubble" that is SV. It is unusual to people outside SV* to see such a high number (the % was just an additional data point that signals to non-tech people how much salaries constitutes tech startups). This has everything to do with the talent war - the market dictates that an engineer's salary must be $foo because Facebook/Google/etc are willing to compensate that much. People are generally curious why that "that's just the way things work" who aren't familiar with it. > company that sells services and develops products Here is my criticism now - not all products and services are equal, yet the costs to develop them (in SV) are. FB/Google/etc.'s high revenues dictate that their products and services constitute a developer that costs $foo - they set the market rates. Talented developers are fungible, but their salaries are not - thus the disconnect. > How much higher would that number have been had Everpix built out their own infrastructure? I don't have the answer to that question, and probably very few people do. There are two points to be addressed there - (1) could they save money by building their own? mature companies deal with that question all of the time (2) this is a real life indication of how much a software services money can make on one client by "selling pick axes in a gold rush" - thereby singalling a reinforcement to that sentiment. *(note - I'm in SV)
- tinco 13y ago
  Aren't these numbers also so high because they took VC funding? The VC wants to throw the company against the wall as fast and hard as possible to see if it sticks. That means no time to roll out custom infrastructure, and hiring rockstar consultants just to build the product as fast as possible. The idea is not terrible, it's definitely better than doing everything the right way (tm) for 5 years, just to find out there is no way to fit the market.
  - Sssnake 13y ago
    >That means no time to roll out custom infrastructure It is sad that the industry is so anti-intellectual that we're actually afraid of computers now. Giving dell a CC# and giving them your hosting providers shipping address is not a complex or difficult task. There is no need for "custom infrastructure" to run a trivial web app. You buy servers, you plug them in.
    - ameister14 13y ago
      This is exactly what I was thinking. More, you can buy some used servers at well below the cost of new ones, they're perfectly serviceable.
    - sethhochberg 13y ago
      I wonder how much of the resentment to owning hardware comes from the "fail fast" approach - if you're trying to vet a business model quickly or move onto the next thing, having actual physical assets to take care of if the company ends up failing could be an off-putting extra complexity for some people vs just clicking "delete instance" with some virtualized provider.
      - ameister14 13y ago
        I think it has more to do with initial fixed cost. Personally I used my cofounder's existing array, but that's not an option for most companies, particularly starting out, and cutting out server purchasing costs pays in the short term. However, if you have the initial funding, as in this instance, it pays to buy the servers you need. Plus, it's an asset that, should your company fail in 6 months, can be sold to at least salvage some of the initial investment. [edit]In the last boom, though, people bought millions of dollars worth of servers and equipment that are now less than worthless; in many cases you have to pay to get rid of them. So, I guess there can be a significant downside.
    - runako 13y ago
      In addition to being fast to deploy, cloud infrastructure lets you easily scale up and down to try things out. This is useful if you're still finding traction or distribution channels that work best. >> Giving dell a CC# and giving them your hosting providers shipping address is not a complex or difficult task Financially, cloud servers have properties that might make them attractive relative to this. Also -- buying and managing colo is a fairly specialized discipline. There are a ton of business reasons to not take on a risk in this part of your business when you can outsource it at nominal cost. A COGS of 14% is quite nominal.
- rtfeldman 13y ago
  This breakdown is characteristic of software startups, not SV in particular. I was involved in the Web startup community in St. Louis, Missouri for years before moving to SF. It was the same for those companies: salary costs dwarfed all other costs.
  - jasomill 13y ago
    Unless I'm mistaken, workforce is the largest single expense of most businesses, not software startups in particular. If anything, as a percentage of operating expenses, 52% sounds kind of low.
- superflit 13y ago
  So are we ready for more H1B visas? Or should we wait for the jobs move more to other countries?
  - rgovind 13y ago
    I am not sure if H1's are paid any lesser than locals...Do you have data points to prove otherwise?
    - mahyarm 13y ago
      Economically increased supply will decrease the price. Supply & demand. Another way to increase supply and thus save money is to hire remotely, and not restrict yourself to a small geographic area. If you can hire a guy in upstate new york where a house costs $40k all in, that $1000-$2000/month saved in after-tax rent costs (~$17-34k/yr pre tax) alone will significantly decrease their required wage.
      - barrkel 13y ago
        If the supply of labor is reduced, the price of labor will rise until demand falls to match supply. That means that some positions will go unfilled; positions whose returns don't exceed the cost of the labor. But we don't know the total value of that labor. The community could be worse off altogether with those positions unfilled, because price doesn't capture all the information - we don't use money for every social exchange, and nor can we reliably estimate the present value of future contributions. For example, many US companies are created by immigrants (18% of Fortune 500, or 40% if you include children of immigrants). Steve Jobs was the child of an immigrant. Hiring a guy who is so enthusiastic about getting a job that he wants to live in a rural area and live on a pittance, vs hiring someone who's ambitious and hungry - who's going to create the most value?
    - reeses 13y ago
      If you're paying H1s less than locals you're violating immigration law. The idea behind the H1 program is to help you when you cannot find local expertise in your specialty and need to recruit globally. It's a very sensitive issue in the USA if you are bringing in less expensive foreigners to "steal" jobs from locals. That said, it's prone to abuse and I have seen some H1s with really poor compensation due to a weak negotiating position (the difficulty of switching jobs while in-country, sponsored adjustment of status, etc.).
- ameister14 13y ago
  HR as a percentage of expenses will be close to or the majority in many companies, not just software or SV companies.
- danielweber 13y ago
  A million dollars is a lot, but I have no reason to think it's crazy. Without very important context, hearing "a million dollars on salary" isn't useful. What was the salary per person, for example?
- patio11 13y ago
  I am intimately familiar with high-level metrics at software businesses in many locales other than Silicon Valley, and direct cost of employees is the largest expense at all of them. (Not true generally, since marketing budgets get arbitrarily high at some firms, but true of all dozen or so that I have direct experience with.) It can easily range to 80%+. Also, the imputed salaries being paid here are very much not Google/Facebook numbers. The payroll for a team of five Goolgers is plus or minus $100k a month, almost double what it was for Everpix. Everybody was likely taking far below-market salaries.
  - patio11 13y ago
    I did a bit of Excel modeling of this, based on Everpix's hiring timeline and published numbers. My count is that they had 157 employee-months prior to shutdown at a fully-loaded cost of approximately $9,200 per employee-month. An employee-month is one month worked by a founder or employee, but not a consultant. Fully-loaded costs includes recruiting, healthcare, salary, and taxes, but (for the purpose of this calculation) does not include pro-rated costs for rent, hardware, software licenses, or what have you. Those are all numbers I'd be careful to bake into my planning as a founder but which I don't need to reverse the math here to salary packages. I would ballpark the average package at Everpix as what Americans would understand as "$90k plus healthcare plus equity." This is not straight-line comparable to "$90k plus healthcare" at other US-based software firms, even those with baseline perks packages for working professionals rather than those competing in the Valley perks arms-race with Google and Facebook. For example, if one were to take "$90k plus healthcare" at an insurance company doing Java EE XL mappings every day, it is virtually beyond question that there'd be 401Ks with employer matching and whatnot in the picture as well. If you were to do a straight-line comparison with e.g. Google or Facebook, this is substantially below their pure-cash offers for fresh graduates with no professional experience, and both would add both substantial cash bonuses and incentives plus equity grants plus perks with non-trivial cash value. The compensation packages employees capable of solo-shipping e.g. iOS applications or non-trivial image recognition software would be offered are substantially north of that. $140k cash-on-the-barrel plus industry standard perks isn't even an eyeraising number for intermediate engineers with no skill more specialized than shipping working software. I'm mostly doing this math to say that "Lavish expenditures on employees were not a contributing factor here. They paid substantially below-market wages for employees doing similar jobs locally." I know that this might cause people who are not located in the Valley to feel a bit of heartburn given the absolute numbers, but that's another discussion entirely. (It should be noted that I live in an area where $90k cash packages would be unusual for engineers with 20+ years of professional experience.)
- masklinn 13y ago
  > It is unusual to people outside SV* to see such a high number (the % was just an additional data point that signals to non-tech people how much salaries constitutes tech startups) It's not unusual at all for payroll to be the vast majority of a company's expenses. Normal profitable business usually expect payroll to be 30~40% of gross revenue (and that's for companies actually earning money, not during bootstrapping), and 50% exists although it's usually considered dangerous for profitability. And of course that depends on the domain, a hairdresser and a refinery will have very different payroll rates and structures. Pretty much all of software and saas company activity and value comes from the people working there, in fact I'd expect payroll %-age to be higher (not lower) outside of SV: lower rent and likely lower utilities.

mbesto 13y ago

My points weren't criticisms, they were merely highlighting the sentiment that comes from outside "the bubble" that is SV. It is unusual to people outside SV* to see such a high number (the % was just an additional data point that signals to non-tech people how much salaries constitutes tech startups). This has everything to do with the talent war - the market dictates that an engineer's salary must be $foo because Facebook/Google/etc are willing to compensate that much. People are generally curious why that "that's just the way things work" who aren't familiar with it. > company that sells services and develops products Here is my criticism now - not all products and services are equal, yet the costs to develop them (in SV) are. FB/Google/etc.'s high revenues dictate that their products and services constitute a developer that costs $foo - they set the market rates. Talented developers are fungible, but their salaries are not - thus the disconnect. > How much higher would that number have been had Everpix built out their own infrastructure? I don't have the answer to that question, and probably very few people do. There are two points to be addressed there - (1) could they save money by building their own? mature companies deal with that question all of the time (2) this is a real life indication of how much a software services money can make on one client by "selling pick axes in a gold rush" - thereby singalling a reinforcement to that sentiment. *(note - I'm in SV)

tinco 13y ago
Aren't these numbers also so high because they took VC funding? The VC wants to throw the company against the wall as fast and hard as possible to see if it sticks. That means no time to roll out custom infrastructure, and hiring rockstar consultants just to build the product as fast as possible. The idea is not terrible, it's definitely better than doing everything the right way (tm) for 5 years, just to find out there is no way to fit the market.
- Sssnake 13y ago
  >That means no time to roll out custom infrastructure It is sad that the industry is so anti-intellectual that we're actually afraid of computers now. Giving dell a CC# and giving them your hosting providers shipping address is not a complex or difficult task. There is no need for "custom infrastructure" to run a trivial web app. You buy servers, you plug them in.
  - ameister14 13y ago
    This is exactly what I was thinking. More, you can buy some used servers at well below the cost of new ones, they're perfectly serviceable.
  - sethhochberg 13y ago
    I wonder how much of the resentment to owning hardware comes from the "fail fast" approach - if you're trying to vet a business model quickly or move onto the next thing, having actual physical assets to take care of if the company ends up failing could be an off-putting extra complexity for some people vs just clicking "delete instance" with some virtualized provider.
    - ameister14 13y ago
      I think it has more to do with initial fixed cost. Personally I used my cofounder's existing array, but that's not an option for most companies, particularly starting out, and cutting out server purchasing costs pays in the short term. However, if you have the initial funding, as in this instance, it pays to buy the servers you need. Plus, it's an asset that, should your company fail in 6 months, can be sold to at least salvage some of the initial investment. [edit]In the last boom, though, people bought millions of dollars worth of servers and equipment that are now less than worthless; in many cases you have to pay to get rid of them. So, I guess there can be a significant downside.
  - runako 13y ago
    In addition to being fast to deploy, cloud infrastructure lets you easily scale up and down to try things out. This is useful if you're still finding traction or distribution channels that work best. >> Giving dell a CC# and giving them your hosting providers shipping address is not a complex or difficult task Financially, cloud servers have properties that might make them attractive relative to this. Also -- buying and managing colo is a fairly specialized discipline. There are a ton of business reasons to not take on a risk in this part of your business when you can outsource it at nominal cost. A COGS of 14% is quite nominal.
rtfeldman 13y ago
This breakdown is characteristic of software startups, not SV in particular. I was involved in the Web startup community in St. Louis, Missouri for years before moving to SF. It was the same for those companies: salary costs dwarfed all other costs.
- jasomill 13y ago
  Unless I'm mistaken, workforce is the largest single expense of most businesses, not software startups in particular. If anything, as a percentage of operating expenses, 52% sounds kind of low.
superflit 13y ago
So are we ready for more H1B visas? Or should we wait for the jobs move more to other countries?
- rgovind 13y ago
  I am not sure if H1's are paid any lesser than locals...Do you have data points to prove otherwise?
  - mahyarm 13y ago
    Economically increased supply will decrease the price. Supply & demand. Another way to increase supply and thus save money is to hire remotely, and not restrict yourself to a small geographic area. If you can hire a guy in upstate new york where a house costs $40k all in, that $1000-$2000/month saved in after-tax rent costs (~$17-34k/yr pre tax) alone will significantly decrease their required wage.
    - barrkel 13y ago
      If the supply of labor is reduced, the price of labor will rise until demand falls to match supply. That means that some positions will go unfilled; positions whose returns don't exceed the cost of the labor. But we don't know the total value of that labor. The community could be worse off altogether with those positions unfilled, because price doesn't capture all the information - we don't use money for every social exchange, and nor can we reliably estimate the present value of future contributions. For example, many US companies are created by immigrants (18% of Fortune 500, or 40% if you include children of immigrants). Steve Jobs was the child of an immigrant. Hiring a guy who is so enthusiastic about getting a job that he wants to live in a rural area and live on a pittance, vs hiring someone who's ambitious and hungry - who's going to create the most value?
  - reeses 13y ago
    If you're paying H1s less than locals you're violating immigration law. The idea behind the H1 program is to help you when you cannot find local expertise in your specialty and need to recruit globally. It's a very sensitive issue in the USA if you are bringing in less expensive foreigners to "steal" jobs from locals. That said, it's prone to abuse and I have seen some H1s with really poor compensation due to a weak negotiating position (the difficulty of switching jobs while in-country, sponsored adjustment of status, etc.).
ameister14 13y ago
HR as a percentage of expenses will be close to or the majority in many companies, not just software or SV companies.
danielweber 13y ago
A million dollars is a lot, but I have no reason to think it's crazy. Without very important context, hearing "a million dollars on salary" isn't useful. What was the salary per person, for example?
patio11 13y ago
I am intimately familiar with high-level metrics at software businesses in many locales other than Silicon Valley, and direct cost of employees is the largest expense at all of them. (Not true generally, since marketing budgets get arbitrarily high at some firms, but true of all dozen or so that I have direct experience with.) It can easily range to 80%+. Also, the imputed salaries being paid here are very much not Google/Facebook numbers. The payroll for a team of five Goolgers is plus or minus $100k a month, almost double what it was for Everpix. Everybody was likely taking far below-market salaries.
- patio11 13y ago
  I did a bit of Excel modeling of this, based on Everpix's hiring timeline and published numbers. My count is that they had 157 employee-months prior to shutdown at a fully-loaded cost of approximately $9,200 per employee-month. An employee-month is one month worked by a founder or employee, but not a consultant. Fully-loaded costs includes recruiting, healthcare, salary, and taxes, but (for the purpose of this calculation) does not include pro-rated costs for rent, hardware, software licenses, or what have you. Those are all numbers I'd be careful to bake into my planning as a founder but which I don't need to reverse the math here to salary packages. I would ballpark the average package at Everpix as what Americans would understand as "$90k plus healthcare plus equity." This is not straight-line comparable to "$90k plus healthcare" at other US-based software firms, even those with baseline perks packages for working professionals rather than those competing in the Valley perks arms-race with Google and Facebook. For example, if one were to take "$90k plus healthcare" at an insurance company doing Java EE XL mappings every day, it is virtually beyond question that there'd be 401Ks with employer matching and whatnot in the picture as well. If you were to do a straight-line comparison with e.g. Google or Facebook, this is substantially below their pure-cash offers for fresh graduates with no professional experience, and both would add both substantial cash bonuses and incentives plus equity grants plus perks with non-trivial cash value. The compensation packages employees capable of solo-shipping e.g. iOS applications or non-trivial image recognition software would be offered are substantially north of that. $140k cash-on-the-barrel plus industry standard perks isn't even an eyeraising number for intermediate engineers with no skill more specialized than shipping working software. I'm mostly doing this math to say that "Lavish expenditures on employees were not a contributing factor here. They paid substantially below-market wages for employees doing similar jobs locally." I know that this might cause people who are not located in the Valley to feel a bit of heartburn given the absolute numbers, but that's another discussion entirely. (It should be noted that I live in an area where $90k cash packages would be unusual for engineers with 20+ years of professional experience.)
masklinn 13y ago
> It is unusual to people outside SV* to see such a high number (the % was just an additional data point that signals to non-tech people how much salaries constitutes tech startups) It's not unusual at all for payroll to be the vast majority of a company's expenses. Normal profitable business usually expect payroll to be 30~40% of gross revenue (and that's for companies actually earning money, not during bootstrapping), and 50% exists although it's usually considered dangerous for profitability. And of course that depends on the domain, a hairdresser and a refinery will have very different payroll rates and structures. Pretty much all of software and saas company activity and value comes from the people working there, in fact I'd expect payroll %-age to be higher (not lower) outside of SV: lower rent and likely lower utilities.