Ask HN: Real costs associated with a startup?
5 comments
"Real" as in dollar, or "real" as in economic?
By far the biggest cost is opportunity cost, but that's also the least "real" in dollar terms. Two years that you spend working on your startup is two years of lost income (~$200K+ for decent software devs), or two years that could've been spent getting an MBA or grad degree, or two years when you're not partying and getting laid.
As for actual monetary costs - paying people to do things is the main one. Legal fees can rack up quickly if you want an actual corporation - easily a couple K for a barebones S-corp if you do it with decent lawyers. If you have employees - well, you know how much you could get paid, then increase that by 50-100% for overhead.
Software and hosting costs were essentially zero - for basically any web stuff, you want to be using free software anyway, and you can get cheap hosting for like $10/month ($80/month if you're doing something weird and need a dedicated server) that's perfectly adequate for trying ideas out. S3/EC2 also can result in really cheap hosting if you're not using much capacity. If you need to scale it'll cost you, but if you get that far you're doing so much better than 99% of startups that you'll welcome it.
Biggest unexpected costs for us, by far, were founder buyouts. My remaining cofounder and I each dropped a grand to buy out cofounders that weren't pulling their weight - and while it was totally the right choice from the POV of preserving the relationships (one of those bought out later led to 2 job leads for me when the startup folded), it would've been even better to not bring them on board to begin with. Be very careful who you start a company with, and make sure you each have the same level of commitment and goals for the company. Buyouts can be as expensive as divorce, and usually lead to the death of the company.
By far the biggest cost is opportunity cost, but that's also the least "real" in dollar terms. Two years that you spend working on your startup is two years of lost income (~$200K+ for decent software devs), or two years that could've been spent getting an MBA or grad degree, or two years when you're not partying and getting laid.
As for actual monetary costs - paying people to do things is the main one. Legal fees can rack up quickly if you want an actual corporation - easily a couple K for a barebones S-corp if you do it with decent lawyers. If you have employees - well, you know how much you could get paid, then increase that by 50-100% for overhead.
Software and hosting costs were essentially zero - for basically any web stuff, you want to be using free software anyway, and you can get cheap hosting for like $10/month ($80/month if you're doing something weird and need a dedicated server) that's perfectly adequate for trying ideas out. S3/EC2 also can result in really cheap hosting if you're not using much capacity. If you need to scale it'll cost you, but if you get that far you're doing so much better than 99% of startups that you'll welcome it.
Biggest unexpected costs for us, by far, were founder buyouts. My remaining cofounder and I each dropped a grand to buy out cofounders that weren't pulling their weight - and while it was totally the right choice from the POV of preserving the relationships (one of those bought out later led to 2 job leads for me when the startup folded), it would've been even better to not bring them on board to begin with. Be very careful who you start a company with, and make sure you each have the same level of commitment and goals for the company. Buyouts can be as expensive as divorce, and usually lead to the death of the company.
Regarding buyouts.. I can't recommend enough a vesting period on founders stock. Usually over 3-4 years. Then, if one of you leaves early, you only get a proportional amount of stock compared to your time invested. A lot of people just can't keep up with it in the long haul despite the best of intentions.
I would say if it's your first (or second) time starting a business there is an amazing amount of costly mistakes. You'll survive if you never make one big enough to put you out of business. We should collect stories about our biggest mistakes..
I would say if it's your first (or second) time starting a business there is an amazing amount of costly mistakes. You'll survive if you never make one big enough to put you out of business. We should collect stories about our biggest mistakes..
My biggest cost, by far, is AdWords, but I always planned on that. Its a "pay $1, get $2" situation, so I'll do that all night long.
The big unanticipated cost for me is freelancers. When I started, I did everything myself, by hand. Turns out that most things are not worth my time. Freelancers are also a "spend money to make money" option for me these days, but I got a shock when I did my taxes last year and realized I had paid out the equivalent of about a month's salary on them.
[edit for context: one-man software business, 2.5 years old, produces roughly dayjob salary.]
The big unanticipated cost for me is freelancers. When I started, I did everything myself, by hand. Turns out that most things are not worth my time. Freelancers are also a "spend money to make money" option for me these days, but I got a shock when I did my taxes last year and realized I had paid out the equivalent of about a month's salary on them.
[edit for context: one-man software business, 2.5 years old, produces roughly dayjob salary.]
Where do you get freelancers from? Have you tried Mechanical Turk?
I've had success with posting from my blog, using elance, and meeting people in real life. Egads no on Mechanical Turk -- I don't need semi-trained monkeys working for peanuts, I need professionals who either a) do stuff that I can't or b) do stuff that I can but at a fraction of what I charge per hour.
I ran an E-commerce company, and we had to fly in some of our products (jewellery). UPS were extortionate - they misquoted me on the phone, and my mistake was not getting it confirmed over email. DHL are fine, in my experience.
In the long term, I should have been more organised so that I had time to ship the products in.
An unexpected cost for me would definitely be CA franchise tax ($800/year) and registered agent fee (~$100/year).
one of the unanticipated costs for me was marketing, I sell my webbased software to businesses and its not the kind of thing you can sell via search results & adwords campaign, so alot of brochures, trade shows and cold calling are required to sell subscriptions.
What business are you in?
Were there any unexpected costs?