The harsh economics of startup are often easily overlooked. So let’s talk about what it really costs an entrepreneur to get a startup off the ground.
It’s about 250 grand.
Now, I know what the first response to that is going to be — because it was my own first response. Not every company needs $250,000 to get started. Hell, I can start a company for $10 right now. Dude. Hand it over and watch me.
The $250K figure actually came from someone I work with who runs a technical consultancy. She’s a wizard, and sometimes she can wield her company’s technical and operational chops at much lower rates to be able to work with startups. She does this because she’s an entrepreneur herself, and working on those kinds of ideas is rewarding and fun.
Fun rarely pays the bills, so she won’t work for free. But neither will she take all of a startup’s money. This is what she told me over coffee yesterday morning:
“I won’t take $50,000 from a startup if that’s all they have because I’ll end up building beautiful tech for them and it’ll just sit there and do nothing because they don’t have money to spend on sales, marketing, even changes to the tech when they realize they’ve built something only half of their customers are using.”
That got me to thinking. She’s right. That number is totally spot on. I’ve rarely seen a company get to sustainability without a minimum runway spend of about $250,000.
But Is She Really Right?
Not every time. There are a couple of ways we can reduce the cash outlay greatly, from the obvious to the just-so-crazy-it-might-work.
Investors are the obvious way to lower the founder’s entrepreneurial bill.
$250,000 is a great target baseline for a seed round. For some companies, it may get them to their first few customers. For others, it may get them to the proof of concept that will allow them to raise a substantial Series A. Either way, it’s a solid number to shoot for.
But it costs money to raise money, and also a ton of time. It’s also kind of a lottery game, especially if we’re not in an entrepreneurial hot spot or we don’t have rich friends.