Friday, May 06, 2011

Startup – The 2011 Capital-Efficient Model

Starting up a tech venture in 2011 is cheaper and easier than ever. My co-founder and I were able to self-finance Mowingo for a long while. Here is how:

Capital Expenditures: the cloud is your friend. My previous company, which I co-founded back in 2003, buried over two million dollars in data centers: we had to buy, install and maintain servers, routers, storage systems, load balancers, backup devices, etc. Mowingo uses the cloud: costless at the start (Amazon Web Services offers a no-fee starter plan,) infinitely scalable, and very inexpensive as your traffic grows. Our only capital expenditure so far: a laptop. Repeat after me: No CapEx!

Software: this is not really a 2011 thing; open source software has been around for a while. Thanks to a variety of open source projects, we can deploy database systems, utilize bug tracking software, enjoy rich development environments, etc. – all at virtually no cost. But in 2011, the wealth of free possibilities is indeed staggering: we use Google Docs for collaboration, shared directories on Dropbox as our Intranet, Skype for all our communications, and as a WebEx substitute we use Adobe’s ConnectNow (free for two participants, extremely cheap if we ever need more.)

Development: get a super-talented technical co-founder and encourage him to burn the midnight oil. Need to hire some extra help? There are offshore companies, with local liaisons right here in Silicon Valley, which offer reliable low cost developments services. Be careful here: selecting the right offshore partner is critical, but once you found it, you’re golden.

QA: finally a justification for procreation: nothing like a teenage daughter to spot bugs in your alpha/beta smartphone application.

Sales and marketing: if neither of the co-founders can sell… you should reconsider this whole entrepreneurship thing. Get a job.

Legal: be your own lawyer (or like me, marry one.) The web has a wealth of standard forms you can use as a starting point: not only templates for sales contracts and employment agreements, but even standard investment documents, such as Ted Wang’s Series Seed Financing Documents. Terms and Conditions? Privacy Policy? That’s what competitors are for. Visit their websites and plagiarize away. Once you are funded, you need to swim with the sharks and get a top-tier law firm; I can say only good things about Fenwick & West. Hire them.

Office space: given the recession and the excess supply in commercial real estate, you can find real bargains. Mowingo went one step further: a friend of mine is hosting us free of charge.

Smartphones for development and demos: they are cheap to buy, but when you have friends in the right places (I do) and you aren’t above begging (I am not) they can even be free.

Recruiting: need a temp sales rep? Post your gig on Craig’s List – they don’t charge you anything for that.

Banking: that’s an easy one: Silicon Valley Bank will offer you a lot of services for free, invite you to countless (free) networking events, and even feed you time and again.

Meals: you don’t need to rely solely on SVB’s food. Turns out angels and VCs can buy you breakfast, lunch, and dinner. Why pay for your meals, if you can pitch while eating at a potential investor’s expense? OK, maybe I’m stretching it a bit too far here…


Anonymous Eileen Nolan said...

Thanks for the mention, Daniel. As an SVBer, I can say that we love working with (and feeding) start-ups!

11:47 AM  

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