Xobni Man Walking Some thoughts from an entrepreneur

A friend just asked about spending at an early stage startup.  I thought I’d post my response in case it’s useful to others.

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hey adam - what do you think your personal burn rate has been during these stages:

seed stage
- a dollars / month on rent
- b dollars / month on everything else personal

vc stage
- x dollars / month on rent
- y dollars / month on everything else personal

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Seed stage (a) should be easy; it’s just the rent for your area.  In Cambridge we had a 3br apartment near Harvard Square for $2200 per month, but we subletted out one of the rooms for $800 per month and had Drew working from our living room for about $400 per month.  In Crystal Towers we paid $2600 for our 2br and then we had a stint of working out of my single which was also about $2600 per month.

I don’t know Seed stage (b) as much because I just didn’t keep track.  But I can triangulate based on our out of cash dates.  We were making $12,000 last four months, though that includes some consulting revenue from Matt working a weekend or two per month @ NASA for $55 per hour.  It was super low.  We ate bagels in the morning with cream cheese, and made turkey sandwiches with avocado for lunch.  Dinner was usually the Italian sandwich/pasta place next door.

Our burn was so low partially because we were working so hard.  When you’re working seven days a week for 14 hours per day that leaves little time else to get out and spend money.

Needless to say, we weren’t drawing a salary.  The company was essentially paying for everything.  Our philosophy was that we put our bank accounts into long term storage, like a secret agent on a 10 year mission would.  We didn’t withdraw from or deposit into our personal accounts.

Once VC stage hit we were slow to accelerate burn, which was smart in some ways and dumb in others.  Matt still didn’t want to spend the money for window AC units (dumb).  We raised our salaries to $72k (smart).  We continued to work out of my apartment until we outgrew it by headcount, not by bank balance (smart).

Matt was a champion for conserving cash.  Him plus our lowly roots made us, as a board member put it, “remarkably capital efficient.”

It caused me some cognitive dissonance, though, to see different spending habits WITHIN rounds.  When we were launching at TechCrunch 40 I had a hired hand we flew in sleep on my couch at home, but a year later while we were still series A we wouldn’t have hesitated to put him up in a hotel.  The people in the company had changed; it wasn’t related to being in series X.

So I guess to answer your VC stage (a) we got a lease for 3200 sq ft for $5000 per month by looking on craigslist.  A steal.

For VC stage (b), we paid all personal expenses by salary.  The salary could be low because we were working so much of the day.

That’s the prevailing effect.  High salaries in a startup are probably exactly correlated with low time in front of a computer.

I felt like I was entering another world today when I walked into the Expo floor at the Salesforce “Dreamforce” conference.

The expo is a room full of vendors that are trying to sell their solutions to Salesforce users.  I was certainly the most underdressed person in the room.  Everyone was in suits, and I was reminded of the cultural rift between sales and tech people.

You can tell how alienated these two groups of people are by listening to how they talk about one another.  One person giving me a demo of their solution said “Then we let Todd loose on the problem!”  If one group has some amount of disrespect for the other, it’s probably the developers with regards to the sales guys.  Sales people certainly respect programmers, even though they don’t understand what they do.

But the Salesforce conference is the land of the sales guy.  I find it both intimidating and exciting.  They have energy and enthusiasm.

Unfortunately they seem to be hurting when it comes to innovation.  I twittered that ninety percent of the solutions venders were either very labor intensive businesses (consulting) or were selling software that ended up creating more work for the user.

For example, there was a software company that helps you bring your email conversations with customers into the salesforce database.  This is a hole in the salesforce workflow, for sure, but their solution was a little convoluted.

Each user had to forward incoming email to this system, and BCC the system on all outgoing emails.  They have an Outlook addin that will automatically BCC the system on your outgoing emails.

Then there’s a tab in the Salesforce UI they add for you to create contacts around new, unknown email addresses.

It’s all very convoluted.  It doesn’t “just work,” yet most of the offerings of 3rd parties had this flavor.  I think that’s why there’s a long tail of vendors; nobody dominates because nobody is adding value in a systematic, high quality way.

I can also understand why.  Most products for sales people are driven by sales people to begin with, and most sales people don’t have good product and technical instincts.  Most people who have those instincts don’t understand sales people, and they especially don’t understand sales managers.  It’s all very depressing, but exciting at the same time.  There’s a lot to be done.