This is a guest article from an iPitch member, Jason Kotchoff. He is Co-Founder of FinancialModelTraining.com, which offers online financial modelling courses for careers in Finance & Banking.
So every programmer with a touch of entrepreneur in them has heard how easy it is to bootstrap a startup from their garage, grow it out real quick and hand it over to google for a cool billion (nice job Chad & Steve). The truth is, for every guy who made it big (and I have met quite a few of them), there are loads and loads of us out there devoting countless hours to projects that will and do fail.
Luckily, trying and failing doesn’t cost much more than the sweat equity involved these days and if you have the right skillset and a great idea, there’s no reason you can’t shift quadrants and build it yourself on the cheap!
Thanks to maturing web frameworks like Ruby on Rails and cheap hosting like EC2, my most recent venture (shameless plug - FinancialModelTraining.com), has an actual financial cost of launching that could be broken down as:
- $680 Shelcom Australian Company Purchase
- $50 Business Cards
- $15 Domain name registration (financialmodeltraining.com from GoDaddy)
- $2 Image & video file asset hosting (S3 on Amazon Web Services)
- $0 Application monitoring and tracking (Hoptoad, New Relic, Google Analytics)
- $0 Email, spreadsheet hosting (Google Apps for Domain)
- $0 Application hosting (Heroku Blossom on Amazon Web Services)
- $0 Software libraries, Paypal integration & testing framework (Open source Cucumber/Rspec, Rails gems etc.)
Total = $747
Hang on, let me repeat that… FinancialModelTraining.com was financially launched for under one thousand dollars!! Well Guy Kawasaki, it seems like the Alltop.com bootstrapping approach can actually work!
Now hang on a second, I know what you might be thinking…”hmmm, that’s a pretty fancy piece of technology for under a thousand bucks - I wonder how long much ’sweat equity’ was involved?”. And the truth is, when you factor the lost opportunity cost of the labour Paul (Mason) and I devoted to building this technology and business (think six months of unpaid work) and then factor the years of labour devoted to previous ventures that didn’t get off the ground for whatever reason (eg. mappedrealestate.com.au), we are all of a sudden looking at a new equation:
- $747 Launch Cost of FinancialModelTraining.com
- $200,000 Potential earnings if we had committed bootstrapping time to paid contract work
Total = ouch… let’s hope there are a lot of graduate bankers going into financial modelling roles this year!
This brings me to the next consideration that all entrepreneurs face - “Do I sell some equity to an Angel or a Vulture Capitalist and pay myself a salary here?”. This is really a question of ones propensity towards risk ie. “How confident am I that this venture will turn a profit and support me and how quickly will that happen?”. Of course to be fair, an investor may bring other experience and contacts to the table which you would not otherwise have access to.
A lot of great programmers I know in Silicon Valley are risk averse and instead choose to accept paid-salary roles at early-stage venture backed startups where their equity stake can range between 0.1% - 2% of the business (or much, much less if they are bamboozled with offers of ‘thousands’ of shares and don’t ask how many shares have actually been issued). This is often also subject to dilution upon subsequent rounds of funding and some engineers I know who have accepted the first few roles at very successful companies have ended up making little more then a reasonable end of year bonus post-acquisition when dilution, tax and vesting are factored.
So you want to be the next Levchin/Hurley/Zuckerberg huh? Truth be told, once you start entrepreneuring it’s hard to look back but be careful - you need a money-making plan and you need to execute it better and faster than your competition (and if it’s a good idea, there -will- be competition).
There’s a million and one startups out there doomed to failure - just search craigslist-sf bayarea-internet engineers for plenty of silly examples, don’t become one of them!
Check out FinancialModelTraining.com’s IPitch profile and follow them here
