I am not writing about my personal budget. Relax. This blog post is about the budgeting for a startup while you have extremely limited resources. Through the examples of my life I want to identify the main priorities for the budget planning.
During the last 4 years I had only one startup with a budget formed from the external resources. This means that to cover our spending we had and still have to take cash from our (and our families) pockets. Also we are accountable to ourselves and we face issues when dealing with numbers. But lets start from the beginning.
When you are starting a new venture you usually run through the different phases:
- Planning (idea setup, team formation, etc),
- Building a product (development),
- Building the audience (marketing, user base, suppliers, etc),
- Rebuild/update (you got the feedback and you listened to it. So start updating!).
After the launch you also have to execute (monthly expenses). This means that you have daily/monthly spending’s.
Before starting to work full time with CraftsWorld I was saving a lot. I counted that I need savings for 6 months. And this was the personal budget for myself. In reality I lived from the savings for a year. Also we were overoptimistic about the getting external investment and this led to another challenge. From the limited savings I had to make a cut and dedicate it to the CraftsWorld needs (hosting, some modules development, events, meetings, etc).
After a year I had to start taking freelancing offers again. And face the reality – our model was not sustainable as it was for the current situation.
Main outcomes from the CraftsWorld were:
- we had to invest money only to the things (activities) which had a measurable ROI.
- we didn`t count alternatives. This means that instead of 3 months development I could do a 2 months consulting and pay for a developer, get a minimum budget for myself.
- we incorporated too soon. We wanted to do everything right and ethical. How ever to pay Social insurance tax each month even if you have no revenue.. Well it was a thing that we didn`t count on and when the cash is really needed – it hurt us a lot.
- we didn`t consult with an accountant and this was too expensive for us. Looking back if we had invested 500LTL to an accountant before the launch (not for the operational book keeping stuff) we would have saved the same amount in a half of year.
- WE PAYED FOR THE PROCESS, NOT THE RESULT. I could name quite many actions we did, how ever to save your time: we payed for a webdesign twice. We could reach the same result buying a template and personalizing it. This could have saved us ~1500LtL. We bought some domains “just in case” or “for the future plans”. We attended conferences, events where we got “great insights” while in reality we had to be locked in the office to do stuff. And we could have saved quite much money. (I am not denying the power of networking. I am more about the search of alternatives to reach the same/alternative people).
I could name more things, how ever lets move on. How I do the JobRely budgeting now.
The situation is quite the same: we have only money we earn from our other activities. We don`t have any angel (had offers – rejected) or a back up from a VC fund (had an offer – rejected). Basically we rejected outside money so we could focus on a thing that matter most – the product. Because of this situation we are funding the project from our own pockets and we valuate money way more.
The development is a priority #1. After wasting some time with a “free-cofounder-developer” and even less time with an attitude “I can make it myself” we did the simple math: by doing what we know best and taking a percent to the “budget” we can hire needed team people for a needed result. Also so it would be all legal and to avoid future issues we decided to use our older companies and later to the “math” between companies (JobRely and the ones we operate) instead of starting a new company straight ahead. At the end the platform costs are predictable.
When it comes to a design, one mistake was made. We bought initial design. How ever after some time we did the following:
- started using free icons for commercial usage;
- included other designer who liked our idea and made a service packages. This means that when I have a designers job for Crafts (ecommerce development) I also add a small part of JobRely works. I pay the invoice, how ever in the sum JobRely works are covered also. Because of these packages I was paying from the other works budget (yeah, from one pocket to another), but still avoiding the unnecessary start of incorporation.
- we started asking people (and designers) how do they feel and using Clicktale to see how they actually act in the website.
When we are speaking about the services, needed for the future development we went either with a killer solution for time wasters (Jira for the bug reporting and tasks management, Github private repository for a SVN) or for a free alternatives (dropbox, google mailing lists). Again, the decisions were made based on ROI – if a solution saves at least 1 hour/day and it costs not more then 10LTL/day – we will consider it. If ROI is not measurable and we can not get it for free – we will not waste money.
At the end of the month you have not only direct investments (product, salaries, services) but also “indirect moments of weakness” when you spend money for shit. As it wouldn`t hurt it so much for a team we are trying to have as many as possible meetings not in public places. Somehow people tend to forget that meetings in cafeterias “requires” you to spend a dime. It is all good while you are having a free time. How ever if you have to pay for yourself to be able to work with a team – maybe it would be better to allocate the money resources to a more important area? So I always seek for an opportunity to gather all the team in a somebody’s office. Not only for the efficiency work, but also for the expenditures line ;).
The same applies for the people and partners hunt/networking. It is always better to meet in a place where you are not forced by the environment to order something.
In future I`ll write more about the marketing and how our budget is made.