10 ms·

Is My Startup Burn Rate Normal?

142 points by nreece 12y ago

prottmann 12y ago
Really interesting, but i think that it is the wrong question. Only you can answer: did you have enough people - and the matching people - to get the job in time X done and reach your goals? You can compare your values only the similar startups, that work on the same problem. Then you now if you pay too much/less or use the wrong structures (inhouse / outsourcing / ...).
deleted 12y ago
[deleted]
danieltillett 12y ago
The question is really impossible to answer as it depends on forces outside your control such as the willingness of investors to invest. They can switch on and off at anytime with no warning. From my outsiders perspective you want to have the ability to become cash flow positive within 3 months if you need to. Also keep in mind if this is going to be possible if the funding environment changes - if your customers are also dependant on investor funding then this is going to be very hard as the start ups from 2000 found out.
- x0x0 12y ago
  that's the trick, isn't it -- it's not so much your burn rate, because you understand that; it's what your customers cut if they decide there's a bubble. eg yahoo during the dotcom bubble: huge chunks of vc were flowing through to yahoo ads. That said, I don't know what Fred means, but $10k/engineer is ridiculous. That's earning well under $100k/year by the time an employer pays social security, health insurance, employment taxes, and rent. You have to be smoking crack to live in sf, home of the $3k/mo apartment, and earn so little money. A standard rule of thumb, more common in nyc than here, is your gross income needs to be 40x your rent.
  - diminish 12y ago
    Do you mean your yearly income must be 40x your monthly rent?
    - x0x0 12y ago
      yes, exactly $2k in rent -> must make $80k/year
  - danieltillett 12y ago
    but $10k/engineer is ridiculous This is net, not gross burn. Assuming you have a viable product you should be earning (some) income.
  - kanwisher 12y ago
    $10k a head is typically averaged across all your functions, engineering being higher and almost every other function under $10k
    - ryanSrich 12y ago
      At a startup with 15 employees I'd guess around 13 are engineers (or engineer related: developers, designers, product, etc.). So wouldn't that mean startups should have a higher burn rate if they are tech heavy? If you consider an average engineer has a loaded cost of $250k per year and you have 13 of them, that means your monthly burn rate would be $270k before accounting for the other 2 employees (most likely founders taking a much smaller salary). This would also be a conservative estimate based on an average salary of $100k (which is barely scraping by in NYC and SF if you're straight out of college with loans). So this must mean startups spending less that $250k with 15 + employees are paying well under market rate (by at least $20-$50k)? But that also wouldn't correspond with the salaries being offered via Angel list and Glassdoor. So something isn't lining up here.
- onion2k 12y ago
  The question is really impossible to answer as it depends on forces outside your control such as the willingness of investors to invest. One of the things I've seen a lot of in startups is people failing to understand the difference between planning and strategy. Every startup has a plan - a detailed list of things that they're going to do. Hopefully the founders update the plan as they get new data. If they fail to execute that plan they're often "Well, things happened that we had no control over!" and the startup dies. What startups need is a strategy. The difference between planning and strategy is that a strategy accounts for things that are uncertain and beyond your control. There is a huge difference between "Our marketing burn is $3000/month because Facebook ads are $100/day" and "We'll spend $3000/month on marketing, split between Facebook and Twitter, skewed to Facebook while our acquisition cost is $0.5/user but shifting towards Twitter if Facebook ad prices start to ramp up as they get less effective." The first is planning. The second is strategy. So yes, success depends on things outside of your control but if you fail because of that then it's still your fault.
  - danieltillett 12y ago
    So yes, success depends on things outside of your control but if you fail because of that then it's still your fault. Unless the forces are so strong that it doesn't matter what plan you have in place. I lived through the 2000 crash (Genomics, but it was basically as crazy as the dotcom area) and survived. I wish I could say it was due to my better planning, but mostly it was luck. When the forces of finance really turn it washes away both the good and bad planners.
    - onion2k 12y ago
      Yes, true. It's not an absolute. Sometimes it could be the case that something huge and entirely unexpected comes along. But that's quite rare - it's more likely to be the founders lack of strategic thinking than an unforeseeable catastrophic event.
      - danieltillett 12y ago
        But that's quite rare - it's more likely to be the founders lack of strategic thinking than an unforeseeable catastrophic event. I am not sure how rare these are - I have lived (and survived) through two in the last 15 years. I guess the other factor is how long your runway needs to be - I come from the biotech side of tech where you need a runway longer than what a full loaded A380 needs. I actually think more of a risk is how tightly the money flows are within tech. This really helps to drive growth when the investors are keen, but the same tight linkages are a killer if anything disruptive happens. A small shock can be quickly amplified to something pretty serious. Of course I agree with you that the most likely cause of start up death is internal.
pearjuice 12y ago
I think this is another indication of how many startups are absolutely out of control in terms of finances. But does it matter? As long as the long stream of capital injections without meaningful profit to show up for doesn't stop, it doesn't matter in the slightest. Looking at those SaaS companies which have employee burn rates way above their salaries and absolute cost, you can only conclude that they are overspending. And that's not something to be proud kf. It actually bothers me how burn rate is artificially increased (ex. redecorating the office periodically, A-office location) just to show how "fast" a startup is moving. It is wrong on so many levels but as long as there are investors which keep pumping air into the bubble, we are safe, right!?
Gold123123 12y ago
Danielle Morrill strikes me as someone running a company only because she's not employable; her ego is too big for her to ever "work for someone" and not "be her own boss". The question she asks in this post is fatuous; does it really matter how much money, in an absolute sense, a company burns per month? She cites revenue growth in the piece, and that's important, but ultimately the fact that she's burning "too much" is related closely to the fact that her start-up has an unclear purpose, is chasing a small market, and doesn't provide much more value than free alternatives (eg. Crunchbase). In this context -- what if she was "burning" $0 per month? In the end, would it matter?
- danieltillett 12y ago
  Can we please avoid the personal attacks here?
- x0x0 12y ago
  Paul Sutter -- founder of quantcast, amongst other companies -- has said he's not suited to employment [1] [1] https://news.ycombinator.com/item?id=3927216 https://news.ycombinator.com/item?id=3927216
  - lowglow 12y ago
    I'm not suitable for employment either.
- rdl 12y ago
  She was basically the first marketing hire at Twilio and everyone I've talked to from there had great things to say about her.
  - dmor 12y ago
    trolls gonna troll
    - rdl 12y ago
      To be fair, you're probably becoming a worse employee every day :)
myrandomcomment 12y ago
Wow. Not sure even what to make of this. I think the real answer is who cares? If you have the right product and if you have the right backing then your burn should be the right number not to tap out the backing to get to what you (founders) and investor feel is the right place to cover your nut. If you need to burn money for a long time then you had better hope you backers are all in on the company. Either it is the right place to "burn" the money for the long haul or get out. I am on my 5th startup and have a had a hit or two to the point that I do not need to work. In the hits it was because the investors were in it for the long game, they believed in you and the idea and would do right to see it get there. The topic of burn never came up if you were doing the right thing for the successes of the company. In my experience, if the investors were focussed on the burn as anything more then "what number gets us there" then you were likely to fail.
- danieltillett 12y ago
  The problem is investors don't care about burn until they all decide at the same time that it is the only thing they care about.
  - richmarr 12y ago
    VCs don't care about burn rate. They care about founders who don't care about burn rate.
revelation 12y ago
Love the discussion. VC investors waking up all sweaty in the night, having their micromanagement self telling them "these kids are going to get us rich, but they better not use too much money doing it!". If you want to hedge your bets, buy index funds.
- boracay 12y ago
  Uhm, I don't know. If there's one area where VCs have far greater understanding than the average startup founder, it's things like resource management. That doesn't mean VCs should make decisions for you, but they should be able to help when it comes to e.g. how long you keep your legacy product going while pivoting. The reason that "startups rarely die in mid keystroke" is that they run out of steering way before they run out of fuel.
othmanaba 12y ago
Rule of thumb is 100k for prototype in 2 months. 1million for a full product in 1 year.
- colinramsay 12y ago
  Whose rule of thumb?
  - muyuu 12y ago
    othmanaba's
- richmarr 12y ago
  Bargain! I'd like cures for cancer and malaria, an interstellar space program, an app that builds other apps without coding, and an O(1) solution to the travelling salesman problem. kthxbye!
  - herge 12y ago
    I'll try my hand at all 5 for 5 million.
- deleted 12y ago
  [deleted]
- jayvanguard 12y ago
  The 1 million sounds about right but the 100k doesn't. How on earth do you staff up quickly enough in two months to get tho that burn rate? Or if that is contracting fees then it isn't really part of your consistent burn rate.
adwf 12y ago
I don't think I've seen the phrase "ramen profitable" mentioned for years now. I remember a few years back it used to be the mantra here, is it taught at YC anymore?
- bollix 12y ago
  There doesn't seem to be as much desire to get profitable any more. Why bother with that when you can just get acquihired by bigco.
- ingenieros 12y ago
  Ramen? pfft, these days is all about stealing from Whole Foods.
- dmor 12y ago
  It is absolutely still taught -- it gives you control over your future which is very important. From my post: "We’ve had two break even months. The first was by accident in October 2013 because we had an unexpected revenue spike. For a moment we felt what it would be like to completely control our own destiny. The second time was in February 2014, because low growth in December scared the living shit out of us and it didn’t look like our Series A was going to come together."
madaxe_again 12y ago
This is utterly batshit. $10k+ per head as your burn rate???!? We're a 30 person org. We burn about £80k a month - $125k. Our revenues are well in excess of that. That includes rent, salaries, and all other expenses. Then again, I guess when you're playing with your own cash, which started as nothing because you bootstrapped, you look at things differently, and don't put "35 foosball tables, offices in manhattan and the valley, and a corporate getaway to the Maldives" at the top of your "essentials" list. I see more and more of what I call "startup dickwaving", whereby people compare metrics on a fairly meaningless basis and act as members of a cute little club of oh aren't we all so special, rather than, y'know, BUSINESS, happening.
- jurassic 12y ago
  $125k/month works out to $50k/yr/person. In case anybody else was wondering.
  - adwf 12y ago
    Means around £30k per employee which is reasonable for UK junior-ish dev straight out of university, but low if they're based in London (I dunno).
    - danieltillett 12y ago
      £30k per employee for all expenses is very low even for the UK.
      - jotm 12y ago
        Welcome to the real world. Most small software businesses who offer some small service (say, an ERP software package no one has ever heard of + support) to a small number of companies hire the cheapest devs they can find.
        danieltillett 12y ago
        I am in the real world :) 30k per employee with all the on-costs is very low. I suspect that a number of these employees are part time or remote workers in low cost countries.
taytus 12y ago
I know, I know...startup = explosive growth. But... It's hard for me to consider something a "startup" when you have more than 1M in the bank and spending 60K monthly. That's a company!
- frostmatthew 12y ago
  > I know, I know...startup = explosive growth. Actually, startup = a company, a partnership or temporary organization designed to search for a repeatable and scalable business model[1] [1] https://en.wikipedia.org/wiki/Startup_company https://en.wikipedia.org/wiki/Startup_company
  - taytus 12y ago
    You're right, I was using PG's definition http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html
    - dmor 12y ago
      (author of the post here) I agree, we don't see ourselves as searching for a business model anymore. We are scaling something that works now.
kayhi 12y ago
"You are expected to tackle a $1 Billion opportunity and achieve hyper-growth (100% year-over-year or more)." Aren't VC back start ups looking for way more than 100% growth per a year? I was under the impression the target is 10-20% growth per a month in revenue. In other words 100% growth is so low it would likely prevent you from staying on the VC back track.
- dmor 12y ago
  If you can grow faster than by all means do! The 10-20% guidance you get in YC is not realistic as you get bigger, smart VCs are much more realistic about revenue growth (given it is recurring and you don't have to pay to acquire that revenue again each month).
bane 12y ago
Startups are a business, and part of business is understanding what every cost is. Part of that is understanding what a "fully burdened" employee costs, it's well over what their salary is. Understanding what's "normal" is tougher. TBH, "normal" is whatever you're burning if you aren't wasting money. A decent WAG at how much money you need to keep a mid-level employee employed for a year is about $250k, it doesn't matter much where, but you might inflate that a bit for SF or NYC, and drop it a bit for Nowhere'sville, Nebraska. That's salary ($100k plus or minus), benefits, office space, administrative overhead, vacation, etc. You'll want to earn more than that, on average, per employee per year, to be profitable. It's useful in other algebraic ways to get a gauge on other company's burn rates, size, or needed revenue. For example, your competitor might advertise that they have 200 employees. That means they operating a $50m/year business to break even. A reasonable target for basic sustainment and growth is $300k/employee/year so they'd need to be a $60m/year business to be growing. Here's some real world examples: Company - Revenue - Employees - Average/employee/year Oracle Corp - $38.27b (2014) - 122,458 - $312,515 Microsoft - $86.83b (2014) - 128,076 - $677,956 Facebook - $7.87b (2013) - 8,348 - $942,740 Sony - $66.12b (2014) - 140,900 - $469,268 Google - $59.83b (2013) - 55,030 - $1.09m Apple - $182.8b (2014) - 98,000 - $1.87m Radio Shack - $4.473b (2010) - 36,400 - $122,884 Amazon - $74.45b (2013) - 132,600 - $561,463 Lockheed - $45.358 (2013) - 116,000 - $391,017 Boeing - $86.623 (2013) - 168,421 - $514,324 Leidos - $7b (prj 2014) - 22,000 - $318,181 SAIC - $3.8b - 13,000 - $292,307 Tesla - $2b (2013) - 10,000 - $200,000 Ford - $147b (2013) - 181,000 - $812,154 Nokia - $15,85b (2013) - 55,025 - $288,050 Now look down this list and think about who's considered wildly successful and hot and who's considered on the way out, in the doldrums or has had recent sell-offs or splits in the company. This isn't perfectly scientific, just a guideline. Startups have a slight advantage in that you can sometimes hire employees at a lower salary in exchange for options. This can temporarily deflate the costs and let you beat these guidelines for a while. But ultimately you'll run out of paper to give out and you'll have to start paying people what they're worth. However, Startup founders, especially first timers, are often at a disadvantage because they've never had to handle so much money before. One startup I was at had a changeover in CEOs and an analysis of non-employee expenses under the previous CEO showed a $30k/mo travel expense for him and the CTO. Turns out the previous CEO and CTO were doing all their business traveling for sales in business class. We had been chronically understaffed. The new CEO cut the travel and hired an outside and inside sales-person for about the same and revenue started increasing shortly thereafter. Interoffice communications was turned into weekly phone conferences and communication even improved. Don't spend your money in stupid ways and you'll have more to put behind the business.
emjaygee 12y ago
I find this disturbing. I realize that startups are usually associated with non-linear returns but assuming the burn rate in the OP is about gross expenses, not just net burndown of the funding, I think that there's a huge problem with hiring the cheapest engineers hoping to make big bucks from the IPO rather than the best engineers who can solve the problem in a reasonable manner. This speaks to the problem with demand for entry level (meaning cheap) folks in the tech sector as well as the disruption culture over delivering long term customer value.
iblaine 12y ago
The ironic part, "Mattermark is a data platform for venture capital companies" I wonder what Mattermark says about their own company.
- danieltillett 12y ago
  Mattermark should not really worry about burn rate for this reason. It only has any revenue if the current funding party continues and if it does then they can continue to raise as much money as they like. If the market turns then their income will evaporate to nothing and burn rate will be the least of their worries.
maaku 12y ago
Who the fuck cares if you burn rate is "normal." The only question that matters is is it higher than it could be? Where can you cut costs and get away with it? If your startup is perfectly on the median, that means half the startups out there are doing better than you. 9 out of 10 startups fail. Are you sure you want to be in the 50th percentile?
- kordless 12y ago
  Cutting a cost simply to cut cost is myopic. A better way to look at it is to shop for value where you can get the biggest returns. Being anal about every little minutia, as the CEO at least, is a massive waste of time.
  - maaku 12y ago
    From the GP: > Where can you cut costs and get away with it? The second clause is just as important.
curiously 12y ago
six digit burn rates just for building a web app with HTML and Javascript?
wooyi 12y ago
Lots of commenters are focusing on the high burn rate and missing the point of the article. If you have product market fit, high growth rates (20-30% MOM) and a large market (>$1B), you can rationalize burning that much. For the rest of us, normal people. It's back to business basics, which is spend less than you earn. That's all.
- danieltillett 12y ago
  The problem is it is very easy to fool yourself that you have these things when you don't really. There is the slight problem of redemption rights that pop up when your investors work out you are just a normal business.

142 points by nreece 12y ago

Really interesting, but i think that it is the wrong question. Only you can answer: did you have enough people - and the matching people - to get the job in time X done and reach your goals? You can compare your values only the similar startups, that work on the same problem. Then you now if you pay too much/less or use the wrong structures (inhouse / outsourcing / ...).

deleted 12y ago

[deleted]

danieltillett 12y ago

The question is really impossible to answer as it depends on forces outside your control such as the willingness of investors to invest. They can switch on and off at anytime with no warning. From my outsiders perspective you want to have the ability to become cash flow positive within 3 months if you need to. Also keep in mind if this is going to be possible if the funding environment changes - if your customers are also dependant on investor funding then this is going to be very hard as the start ups from 2000 found out.

x0x0 12y ago
that's the trick, isn't it -- it's not so much your burn rate, because you understand that; it's what your customers cut if they decide there's a bubble. eg yahoo during the dotcom bubble: huge chunks of vc were flowing through to yahoo ads. That said, I don't know what Fred means, but $10k/engineer is ridiculous. That's earning well under $100k/year by the time an employer pays social security, health insurance, employment taxes, and rent. You have to be smoking crack to live in sf, home of the $3k/mo apartment, and earn so little money. A standard rule of thumb, more common in nyc than here, is your gross income needs to be 40x your rent.
- diminish 12y ago
  Do you mean your yearly income must be 40x your monthly rent?
  - x0x0 12y ago
    yes, exactly $2k in rent -> must make $80k/year
- danieltillett 12y ago
  but $10k/engineer is ridiculous This is net, not gross burn. Assuming you have a viable product you should be earning (some) income.
- kanwisher 12y ago
  $10k a head is typically averaged across all your functions, engineering being higher and almost every other function under $10k
  - ryanSrich 12y ago
    At a startup with 15 employees I'd guess around 13 are engineers (or engineer related: developers, designers, product, etc.). So wouldn't that mean startups should have a higher burn rate if they are tech heavy? If you consider an average engineer has a loaded cost of $250k per year and you have 13 of them, that means your monthly burn rate would be $270k before accounting for the other 2 employees (most likely founders taking a much smaller salary). This would also be a conservative estimate based on an average salary of $100k (which is barely scraping by in NYC and SF if you're straight out of college with loans). So this must mean startups spending less that $250k with 15 + employees are paying well under market rate (by at least $20-$50k)? But that also wouldn't correspond with the salaries being offered via Angel list and Glassdoor. So something isn't lining up here.
onion2k 12y ago
The question is really impossible to answer as it depends on forces outside your control such as the willingness of investors to invest. One of the things I've seen a lot of in startups is people failing to understand the difference between planning and strategy. Every startup has a plan - a detailed list of things that they're going to do. Hopefully the founders update the plan as they get new data. If they fail to execute that plan they're often "Well, things happened that we had no control over!" and the startup dies. What startups need is a strategy. The difference between planning and strategy is that a strategy accounts for things that are uncertain and beyond your control. There is a huge difference between "Our marketing burn is $3000/month because Facebook ads are $100/day" and "We'll spend $3000/month on marketing, split between Facebook and Twitter, skewed to Facebook while our acquisition cost is $0.5/user but shifting towards Twitter if Facebook ad prices start to ramp up as they get less effective." The first is planning. The second is strategy. So yes, success depends on things outside of your control but if you fail because of that then it's still your fault.
- danieltillett 12y ago
  So yes, success depends on things outside of your control but if you fail because of that then it's still your fault. Unless the forces are so strong that it doesn't matter what plan you have in place. I lived through the 2000 crash (Genomics, but it was basically as crazy as the dotcom area) and survived. I wish I could say it was due to my better planning, but mostly it was luck. When the forces of finance really turn it washes away both the good and bad planners.
  - onion2k 12y ago
    Yes, true. It's not an absolute. Sometimes it could be the case that something huge and entirely unexpected comes along. But that's quite rare - it's more likely to be the founders lack of strategic thinking than an unforeseeable catastrophic event.
    - danieltillett 12y ago
      But that's quite rare - it's more likely to be the founders lack of strategic thinking than an unforeseeable catastrophic event. I am not sure how rare these are - I have lived (and survived) through two in the last 15 years. I guess the other factor is how long your runway needs to be - I come from the biotech side of tech where you need a runway longer than what a full loaded A380 needs. I actually think more of a risk is how tightly the money flows are within tech. This really helps to drive growth when the investors are keen, but the same tight linkages are a killer if anything disruptive happens. A small shock can be quickly amplified to something pretty serious. Of course I agree with you that the most likely cause of start up death is internal.

pearjuice 12y ago

I think this is another indication of how many startups are absolutely out of control in terms of finances. But does it matter? As long as the long stream of capital injections without meaningful profit to show up for doesn't stop, it doesn't matter in the slightest. Looking at those SaaS companies which have employee burn rates way above their salaries and absolute cost, you can only conclude that they are overspending. And that's not something to be proud kf. It actually bothers me how burn rate is artificially increased (ex. redecorating the office periodically, A-office location) just to show how "fast" a startup is moving. It is wrong on so many levels but as long as there are investors which keep pumping air into the bubble, we are safe, right!?

Gold123123 12y ago

Danielle Morrill strikes me as someone running a company only because she's not employable; her ego is too big for her to ever "work for someone" and not "be her own boss". The question she asks in this post is fatuous; does it really matter how much money, in an absolute sense, a company burns per month? She cites revenue growth in the piece, and that's important, but ultimately the fact that she's burning "too much" is related closely to the fact that her start-up has an unclear purpose, is chasing a small market, and doesn't provide much more value than free alternatives (eg. Crunchbase). In this context -- what if she was "burning" $0 per month? In the end, would it matter?

danieltillett 12y ago
Can we please avoid the personal attacks here?
x0x0 12y ago
Paul Sutter -- founder of quantcast, amongst other companies -- has said he's not suited to employment [1] [1] https://news.ycombinator.com/item?id=3927216 https://news.ycombinator.com/item?id=3927216
- lowglow 12y ago
  I'm not suitable for employment either.
rdl 12y ago
She was basically the first marketing hire at Twilio and everyone I've talked to from there had great things to say about her.
- dmor 12y ago
  trolls gonna troll
  - rdl 12y ago
    To be fair, you're probably becoming a worse employee every day :)

myrandomcomment 12y ago

Wow. Not sure even what to make of this. I think the real answer is who cares? If you have the right product and if you have the right backing then your burn should be the right number not to tap out the backing to get to what you (founders) and investor feel is the right place to cover your nut. If you need to burn money for a long time then you had better hope you backers are all in on the company. Either it is the right place to "burn" the money for the long haul or get out. I am on my 5th startup and have a had a hit or two to the point that I do not need to work. In the hits it was because the investors were in it for the long game, they believed in you and the idea and would do right to see it get there. The topic of burn never came up if you were doing the right thing for the successes of the company. In my experience, if the investors were focussed on the burn as anything more then "what number gets us there" then you were likely to fail.

danieltillett 12y ago
The problem is investors don't care about burn until they all decide at the same time that it is the only thing they care about.
- richmarr 12y ago
  VCs don't care about burn rate. They care about founders who don't care about burn rate.

revelation 12y ago

Love the discussion. VC investors waking up all sweaty in the night, having their micromanagement self telling them "these kids are going to get us rich, but they better not use too much money doing it!". If you want to hedge your bets, buy index funds.

boracay 12y ago
Uhm, I don't know. If there's one area where VCs have far greater understanding than the average startup founder, it's things like resource management. That doesn't mean VCs should make decisions for you, but they should be able to help when it comes to e.g. how long you keep your legacy product going while pivoting. The reason that "startups rarely die in mid keystroke" is that they run out of steering way before they run out of fuel.

othmanaba 12y ago

Rule of thumb is 100k for prototype in 2 months. 1million for a full product in 1 year.

colinramsay 12y ago
Whose rule of thumb?
- muyuu 12y ago
  othmanaba's
richmarr 12y ago
Bargain! I'd like cures for cancer and malaria, an interstellar space program, an app that builds other apps without coding, and an O(1) solution to the travelling salesman problem. kthxbye!
- herge 12y ago
  I'll try my hand at all 5 for 5 million.
deleted 12y ago
[deleted]
jayvanguard 12y ago
The 1 million sounds about right but the 100k doesn't. How on earth do you staff up quickly enough in two months to get tho that burn rate? Or if that is contracting fees then it isn't really part of your consistent burn rate.

adwf 12y ago

I don't think I've seen the phrase "ramen profitable" mentioned for years now. I remember a few years back it used to be the mantra here, is it taught at YC anymore?

bollix 12y ago
There doesn't seem to be as much desire to get profitable any more. Why bother with that when you can just get acquihired by bigco.
ingenieros 12y ago
Ramen? pfft, these days is all about stealing from Whole Foods.
dmor 12y ago
It is absolutely still taught -- it gives you control over your future which is very important. From my post: "We’ve had two break even months. The first was by accident in October 2013 because we had an unexpected revenue spike. For a moment we felt what it would be like to completely control our own destiny. The second time was in February 2014, because low growth in December scared the living shit out of us and it didn’t look like our Series A was going to come together."

madaxe_again 12y ago

This is utterly batshit. $10k+ per head as your burn rate???!? We're a 30 person org. We burn about £80k a month - $125k. Our revenues are well in excess of that. That includes rent, salaries, and all other expenses. Then again, I guess when you're playing with your own cash, which started as nothing because you bootstrapped, you look at things differently, and don't put "35 foosball tables, offices in manhattan and the valley, and a corporate getaway to the Maldives" at the top of your "essentials" list. I see more and more of what I call "startup dickwaving", whereby people compare metrics on a fairly meaningless basis and act as members of a cute little club of oh aren't we all so special, rather than, y'know, BUSINESS, happening.

jurassic 12y ago
$125k/month works out to $50k/yr/person. In case anybody else was wondering.
- adwf 12y ago
  Means around £30k per employee which is reasonable for UK junior-ish dev straight out of university, but low if they're based in London (I dunno).
  - danieltillett 12y ago
    £30k per employee for all expenses is very low even for the UK.
    - jotm 12y ago
      Welcome to the real world. Most small software businesses who offer some small service (say, an ERP software package no one has ever heard of + support) to a small number of companies hire the cheapest devs they can find.
      - danieltillett 12y ago
        I am in the real world :) 30k per employee with all the on-costs is very low. I suspect that a number of these employees are part time or remote workers in low cost countries.

taytus 12y ago

I know, I know...startup = explosive growth. But... It's hard for me to consider something a "startup" when you have more than 1M in the bank and spending 60K monthly. That's a company!

frostmatthew 12y ago
> I know, I know...startup = explosive growth. Actually, startup = a company, a partnership or temporary organization designed to search for a repeatable and scalable business model[1] [1] https://en.wikipedia.org/wiki/Startup_company https://en.wikipedia.org/wiki/Startup_company
- taytus 12y ago
  You're right, I was using PG's definition http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html
  - dmor 12y ago
    (author of the post here) I agree, we don't see ourselves as searching for a business model anymore. We are scaling something that works now.

kayhi 12y ago

"You are expected to tackle a $1 Billion opportunity and achieve hyper-growth (100% year-over-year or more)." Aren't VC back start ups looking for way more than 100% growth per a year? I was under the impression the target is 10-20% growth per a month in revenue. In other words 100% growth is so low it would likely prevent you from staying on the VC back track.

dmor 12y ago
If you can grow faster than by all means do! The 10-20% guidance you get in YC is not realistic as you get bigger, smart VCs are much more realistic about revenue growth (given it is recurring and you don't have to pay to acquire that revenue again each month).

bane 12y ago

Startups are a business, and part of business is understanding what every cost is. Part of that is understanding what a "fully burdened" employee costs, it's well over what their salary is. Understanding what's "normal" is tougher. TBH, "normal" is whatever you're burning if you aren't wasting money. A decent WAG at how much money you need to keep a mid-level employee employed for a year is about $250k, it doesn't matter much where, but you might inflate that a bit for SF or NYC, and drop it a bit for Nowhere'sville, Nebraska. That's salary ($100k plus or minus), benefits, office space, administrative overhead, vacation, etc. You'll want to earn more than that, on average, per employee per year, to be profitable. It's useful in other algebraic ways to get a gauge on other company's burn rates, size, or needed revenue. For example, your competitor might advertise that they have 200 employees. That means they operating a $50m/year business to break even. A reasonable target for basic sustainment and growth is $300k/employee/year so they'd need to be a $60m/year business to be growing. Here's some real world examples: Company - Revenue - Employees - Average/employee/year Oracle Corp - $38.27b (2014) - 122,458 - $312,515 Microsoft - $86.83b (2014) - 128,076 - $677,956 Facebook - $7.87b (2013) - 8,348 - $942,740 Sony - $66.12b (2014) - 140,900 - $469,268 Google - $59.83b (2013) - 55,030 - $1.09m Apple - $182.8b (2014) - 98,000 - $1.87m Radio Shack - $4.473b (2010) - 36,400 - $122,884 Amazon - $74.45b (2013) - 132,600 - $561,463 Lockheed - $45.358 (2013) - 116,000 - $391,017 Boeing - $86.623 (2013) - 168,421 - $514,324 Leidos - $7b (prj 2014) - 22,000 - $318,181 SAIC - $3.8b - 13,000 - $292,307 Tesla - $2b (2013) - 10,000 - $200,000 Ford - $147b (2013) - 181,000 - $812,154 Nokia - $15,85b (2013) - 55,025 - $288,050 Now look down this list and think about who's considered wildly successful and hot and who's considered on the way out, in the doldrums or has had recent sell-offs or splits in the company. This isn't perfectly scientific, just a guideline. Startups have a slight advantage in that you can sometimes hire employees at a lower salary in exchange for options. This can temporarily deflate the costs and let you beat these guidelines for a while. But ultimately you'll run out of paper to give out and you'll have to start paying people what they're worth. However, Startup founders, especially first timers, are often at a disadvantage because they've never had to handle so much money before. One startup I was at had a changeover in CEOs and an analysis of non-employee expenses under the previous CEO showed a $30k/mo travel expense for him and the CTO. Turns out the previous CEO and CTO were doing all their business traveling for sales in business class. We had been chronically understaffed. The new CEO cut the travel and hired an outside and inside sales-person for about the same and revenue started increasing shortly thereafter. Interoffice communications was turned into weekly phone conferences and communication even improved. Don't spend your money in stupid ways and you'll have more to put behind the business.

emjaygee 12y ago

I find this disturbing. I realize that startups are usually associated with non-linear returns but assuming the burn rate in the OP is about gross expenses, not just net burndown of the funding, I think that there's a huge problem with hiring the cheapest engineers hoping to make big bucks from the IPO rather than the best engineers who can solve the problem in a reasonable manner. This speaks to the problem with demand for entry level (meaning cheap) folks in the tech sector as well as the disruption culture over delivering long term customer value.

iblaine 12y ago

The ironic part, "Mattermark is a data platform for venture capital companies" I wonder what Mattermark says about their own company.

danieltillett 12y ago
Mattermark should not really worry about burn rate for this reason. It only has any revenue if the current funding party continues and if it does then they can continue to raise as much money as they like. If the market turns then their income will evaporate to nothing and burn rate will be the least of their worries.

maaku 12y ago

Who the fuck cares if you burn rate is "normal." The only question that matters is is it higher than it could be? Where can you cut costs and get away with it? If your startup is perfectly on the median, that means half the startups out there are doing better than you. 9 out of 10 startups fail. Are you sure you want to be in the 50th percentile?

kordless 12y ago
Cutting a cost simply to cut cost is myopic. A better way to look at it is to shop for value where you can get the biggest returns. Being anal about every little minutia, as the CEO at least, is a massive waste of time.
- maaku 12y ago
  From the GP: > Where can you cut costs and get away with it? The second clause is just as important.

curiously 12y ago

six digit burn rates just for building a web app with HTML and Javascript?

wooyi 12y ago

Lots of commenters are focusing on the high burn rate and missing the point of the article. If you have product market fit, high growth rates (20-30% MOM) and a large market (>$1B), you can rationalize burning that much. For the rest of us, normal people. It's back to business basics, which is spend less than you earn. That's all.

danieltillett 12y ago
The problem is it is very easy to fool yourself that you have these things when you don't really. There is the slight problem of redemption rights that pop up when your investors work out you are just a normal business.