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Comment by nstart | Hacker News Reader

Can someone explain the math here? 2012 they received 3M in seed funding. 2014 they received 14M USD. The picture on that boat shows 26 (?) people. So let's assume 26 people were always in the company just for kicks.

Between 2012 October and 2015 September they ran out of 17M USD. That's a burn rate of 5.67M USD per year.

For 26 employees, if we stupidly assumed no other costs, that nearly 218k USD salary per year.

Obviously that's not right. Let's assume they paid an average of 100k USD per year to each employee. That's 2.6M USD burnt for salaries. Which means that infrastructure, ad spend, and administrative costs and taxes (?) came to just over 3M USD per year.

And that's assuming they received ZERO money while they were running. Which is of course a load of tosh.

I'm unaware of the US market's costs in running a business but those numbers seem abnormal. Am I missing something here or does this seem plausible?

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Wages are at most 70% of the cost of an employee to a business, and possibly as low as 50% of the fully burdened cost. For an employee to gross $100k on their paystub (before their own taxes), a competitive employer in NYC is likely paying a full burden (with payroll taxes, insurance, other benefits, admin overhead, office space, and supplies) not too far from $218k.

Wow. That's amazing. I genuinely had no idea that the costs of running could be that high. Thanks for sharing that info. It boggles my mind as to how much money startups probably need just to stay break even.

I think the parent's estimate is a little high, but here's what I know. w2 employers are responsible for

- 6.2% SS + 1.45% medicare fica taxes

- health insurance, of which the employer's share can easily run $1k/mo for a couple in their 30s

- 1.5% payroll tax if in sf, or 0.34% payroll tax for mta in nyc;

so if someone makes $100k in sf, the employer pays

   (1.0 + 0.0765 fica + 0.015 city payroll tax) * 100k
   + 12*1k health insurance
   + 12 * $1200 monthly rent
   + 12 * $100 snacks/office supplies
   + maybe $500/year for unemployment insurance and various other fees

totaling (1.0765 + 0.015) * 1e5 + 12*(1e3 + 1.2e3 + 100) + 500 = $137k. That doesn't include any activities, hardware, or meals. If you buy lunch, a former employer budgeted $14 per person day, so assuming 250 work days = $3500/year

You also have to consider employees who make money vs. employees who cost money. Administrative overhead, management, etc. aren't often major contributors to revenue, but their cost metrics are the same. So the burden on money making employees can be considered to be even higher.

You can get some economies of scale with more revenue generating employees vs. cost center employees, but no matter what, as companies grow they need cost center employees to make the ship sail.

Another 0.9% ($939 max) for CA SDI, $250 workers comp, and the employer probably has some sort of life & disability of their own as well, call it another $500. Payroll & benefits admin for $500. $12k health insurance contribution seems low, but I suppose population skews to 20s and single.

I do think 70% is about the best you can really do ($142k), but I agree 50% would be lavish. Throw in a regular dinner program, or some regular offsite meals & entertainment doesn't hurt. Since 274(e) expenses are fully deductible, IRS is basically paying for 35-40% of that annual picnic, holiday dinner, Caribbean retreat, etc. so it's smart for companies to shell out some real money for these outings.

Thanks! I think there's also about $500/pp of various fees in CA; stuff charged on the first $7k of income.

tangent: security via obesity is a cool idea.

Which makes it even more crazy that after the employee pays taxes, the take home only about 70% of that.

An easy way to guesstimate how long a company's investment will last (given no other revenue) is to just assume each person they have on staff costs between $200-$250k per year.

It's not perfectly accurate, but it's surprisingly good in terms of figuring out runway. Staffing costs are typically the lions share of business costs for software companies. This gets weird if they do lots of advertising, or have enormous hosting costs or something, but it's usually on the order of 70-80% of the total operating costs (by comparison renting physical locations like offices is usually among the cheapest).

So let's assume they had 26 people, that's between $5.2m-6.5m per year...right in line with what the actual math shows ($5.67m).

There's other ways of estimating, like if you think a company is running cheap you can go with the old "10 people for a million dollars a year" guess, but I've found that to be increasingly inaccurate.

The reason the numbers look like this isn't because that's what people get paid, but because of all the other cost burdens on having employees -- most of which are already covered here.

It's also one of those things that makes me scratch my head when startups hire huge staffs too early. In good markets, hiring loads of people isn't a huge deal, but burning millions per year you don't have doesn't make much sense.

I've heard that when you factor in office space, desks, computers, benefits, etc.; the cost of hiring an employee to the company is roughly 2x their gross salary. (As for income tax, at that bracket, it's something like 40-50%?)

Isn't income tax included in the gross salary?

Somebody needs to revisit the numbers for capital costs of technology. When a new employee in 1995 cost $50,000, and their Compaq LTE-5300 Laptop, Docking station was $3000 - cost of computer was an issue (Particularly as you needed a lot of service / repair to keep it running, configured) - And you were lucky to get 2 years of service.

In 2015, a new employee costs $150,000, and their computer still costs $3000 (or less) - and now lasts at least 2 years, and in many cases, can be stretched out to three years.

In Redwood City, industrial/quasi commercial space in 2007 was going for $1.50/sq/foot - figure * 200 per employee = $3600/year for office space.

Desk, chairs, cubes, etc.. cost around $1500/employee delivered/installed (Always buy used. Add an extra $600 if you want Aeron Chairs).

I would be interested in seeing if anybody has a soup-nuts assessment for all of the office costs for an employee in 2015 in the valley.

Are you sure they ran out of cash? I haven't read that anywhere. It's possible they found the problem intractable and decided to return the remaining investor cash.

Fair point. Was going by the numbers of 3M USD seed round in 2012, and 17M in 2014. Without much major press and valuations being made public, it's kind of safe to assume that the 3M USD was burning out by the end of 2013. 14M from 2013 to 2015 would be 7M per year. Assuming rising costs from both running the business, 5M and 9M across two years seems plausible.

Given the number of employees in the company (26), 3 co founders, who form half of a 6 C-level team, it's likely that the team size increased along that curve as well (3M, 5M, 9M). This is entirely speculation at this point.

But after some further reading, it's possible that their business model may have just been not profitable. For each reader who read more than 10% of a book, the full retail price of the book is paid out to publishers. For people reading 3-4 books a month, they would be making a loss from those customers.

If you aren't the sort that reads 3-4 books a month, then you are also probably not the kind of person who spends a 10 USD subscription service to an 'all-you-can-read' ebook service. Therefore the larger base of customers there were probably loss makers. So assuming a growing customer base made up of loss makers it's entirely likely that they burnt out funds. Now that the running costs of a business in general were clarified in a reply above it actually makes sense that the money could have run out.

Content costs money. It seems reasonable that most of that money went towards buying the rights to all the books they were renting.

I'm pretty sure I saw them around in 2011 so I don't understand why report wrong age of the company here? Note they did a seed round of $3 million in 2012.

Apologies if I did make a mistake: From recode's article:

> In a blog post on Monday, Oyster’s founders said they were “taking steps to sunset” the company’s service, which launched in 2012.

Other data like crunchbase pointed to 2012 too.

http://recode.net/2015/09/21/oyster-books-shuts-down-team-he...

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