Startup budgets and competitors


1

I am finally putting the final touches on my business plan and have begun looking for seed capital for my project.

In recent weeks I have come upon new data about the startup capital of some of my direct and indirect competitors. I have tried to make my project as lean as possible but am worried about being under capitalized. One of my competitors had a startup budget 3x my own and another that just launched has one that is 20x mine.

Am I being too spartan and putting my project at risk by underfunding it or am I being a responsible, boot-strapping sort of entrepreneur?

Competition Budget

asked May 10 '11 at 07:50
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Miguel Buckenmeyer
482 points

3 Answers


2

While startup capital is important, I see little value in comparing your own level of capital with that of a competitor, if the key to success was simply a case of raising the most capital then business would be easy, right?

Instead of worrying about other companies, worry about yourself and your potential customers, speak with them and become a part of their community, You simply can't buy that you need to earn it.

answered May 10 '11 at 09:26
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Floyd Price
196 points
  • That's the plan, speak to customers early and iterate... thanks for the answer. – Miguel Buckenmeyer 9 years ago

1

If you can do it for that amount then you are in better long term shape than the other guys. But you may have overlooked something:

  • How many people and varying roles you will need.
  • How much the marketing effort is going to take
  • Your intended growth rate, they may be targeting 1 million new clients in a year, where your expecting 1000.

Here is a basic costing sheet for a software startup:

Each salary has to be paid for 2 years to start with, then have 30% on costs per person on average. So you have

  • 3 good developers - $80-100K each. Say $300,000 per year.
  • 1 marketing person = $150K
  • 2 Sales - $100K each = $200K
  • 2 support people answer questions and fixing things - $60K = $120K
  • CEO $120K

= $890K in raw wages per year x 30% for on costs x 2 years approx $2.3M for a small team.

Then you have costs

  • hosting costs, advertising, travel costs ramp up really quickly.
  • Servers, programming tools, processes and systems, rent on a building to put them all in.
  • Then you do promotions and trade shows ($40K per show minimum) 3 of those per year
  • Then if you make it big and have to scale, you end up with full time PR people, full time web maintenance and performance tuners, HR people, inductions and ... it goes on
And what if your wrong and half way thorugh the 2 years you have to pivot and do something else ...

Then each specific business has its own unique issues / troubles, they all cost.

... i have 8 developers 1 key sales, 2 support and me in 2 companies ... we sell through Australia, New Zealand, Canada and the US ... $1M goes out the door pretty quickly each year.

As a CEO you need to have enough money to spend in order to build, if you are always paused waiting for the next dollar you may not get the momentum you need.

answered May 10 '11 at 09:47
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Robin Vessey
8,394 points
  • Thanks for the comment Rob. As soon as I start "trying to be realistic" and increasing my budget for marketing and personnel, the startup budget becomes really big and I don't see how I can do this without an angel really early in the process. – Miguel Buckenmeyer 9 years ago
  • Then your plan is for slower growth and be scrapy. Try alternatives to walking the army in the front door. Partner with another company who has what you don't, like the existing market ... thats what we are looking to do with one of our ventures. – Robin Vessey 9 years ago
  • Thanks, another good comment, idea. I have also thought vaguely about this but yes, it is on my list of things to study once we get our prototype a bit further along and I have something to show potential partners. – Miguel Buckenmeyer 9 years ago

1

You know the budgets of all your competitors? Then you are one lucky dude. Chances are these numbers are not that reliable, you have other known competitors with unknown budgets, and even more unknown competitors.

Rather than get insecure about your business plan based on such dubious information, look back at what it is that is making you nervous about your plan by looking within your plan. Can you defend your decisions and assumptions? If not, work it out. If so, relax and get to work.

answered May 10 '11 at 09:56
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Kenneth Vogt
2,917 points
  • Yes, you are right, comparing my plan only serves to underscore that I am unsure about some of mine assumptions and decisions. Worried that I am underfunding marketing and staffing in general to get to the sales I am projecting. – Miguel Buckenmeyer 9 years ago

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