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Comment by madaxe_again | Hacker News Reader

This is utterly batshit. $10k+ per head as your burn rate???!?

We're a 30 person org. We burn about £80k a month - $125k. Our revenues are well in excess of that. That includes rent, salaries, and all other expenses.

Then again, I guess when you're playing with your own cash, which started as nothing because you bootstrapped, you look at things differently, and don't put "35 foosball tables, offices in manhattan and the valley, and a corporate getaway to the Maldives" at the top of your "essentials" list.

I see more and more of what I call "startup dickwaving", whereby people compare metrics on a fairly meaningless basis and act as members of a cute little club of oh aren't we all so special, rather than, y'know, BUSINESS, happening.

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"Our revenues are well in excess of that."

Doesn't burn rate cash flow indicate negative cash flow - so if your revenues are much higher that what you are spending then you don't really have a burn rate in the normal sense as you are cash flow positive?

The op did say burn not burn rate. I think quite a few of the disagreements here are the result of us not being clear about what we mean by different terms. Burn rate is negative cash flow so cash income - cash expenses.

"We burn about £80k a month"

I think most people hearing that would interpret it as "burn rate" rather than cash expenses.

I agree. This is why I said the problem is we need to be more precise in the terms we use.

Sure - was using burn rate in terms of "we burn this much cash a month" - but we also have income, which is greater than our expenses.

Sweet, that means you are already bootstrapped and you don't need to raise capital. This post is about startups that need capital.

Why would the expenses per employee for a bootstrapped company be different than the expenses per employee at a startup?

Because they cannot afford the same things and they don't have to explain their expenses to any creditor or investor.

Because you can only spend money you have. If you have lots in the bank then you can spend a lot - most bootstrapped companies can't afford to have any burn rate without soon being out of business.

Yeah, they need capital because they're pissing money away at an amazing rate, and as someone who has, y'know, actually done this, and built a business (well, several) from scratch without funding which works and profits and grows, I might know something about this, rather than some pundit who runs a startup that has never, and probably will never, be an actual business.

If you're not filling an efficiency gap, and you're not making money, you're not a business. You can fail one of those criteria and be either a parasite or a charity, but you need both to be a business.

You make some good points, but your analysis would be stronger if you compared apples to apples. By your own admission, you are bootstrapped. This conversation is about venture funded companies. A VC's business model is dramatically different from your model in investing in your own company - VCs rely on outliers which can achieve truly massive exits and 20+x returns. Outlier companies will do outlier things, perhaps to achieve outlier-esque growth, or perhaps merely to signal that they could be outliers...

These arguments are asinine.

The dollar bills on Sand Hill Road don't have magical properties. When a venture firm invests in your company, it adds cash to your balance sheet. Nothing more, nothing less. Spend that cash too quickly, invest it in the wrong things or don't get far enough with it and you're eventually going to die unless you find another source of cash.

And that's where we have a problem: the crazy burn rates you see in venture-backed startup land are based in large part on the fact that founders are by and large taking for granted their ability to raise more capital.

Just look at the OP's company: it's burning $150-200,000 every month despite the fact that it couldn't raise a traditional Series A and instead had to cobble together $2 million from "4 institutional investors and dozens of angels." The OP spins this as an "unconventional second seed round" but if and when she has to go back to the feeding trough, she shouldn't be surprised to find that many investors will treat her company like a Series B prospect subject to a much, much higher bar.

Bottom line: raising venture capital in and of itself doesn't make you an outlier and no founder should run his or her company like it's an outlier until there is demonstrable proof it is one.

This is very true. I would argue that no founder should ever run their company like an outlier as the risks this induces are far greater than any reward. The hedonistic value of money decays at an amazing rate.

The arguments are beyond asinine, but they happen. Consider leasing an office in San Francisco - how many venture funded companies lease space assuming that their headcount will grow exponentially? Actual exponential growth in staff count is relatively uncommon, but the assumption of exponential growth leads too many companies to pay for empty space. This is stupid and results in many potentially strong companies failing miserably, but these sorts of assumptions actually happen.

From the post:

> When Mattermark was just a tool for VC deal sourcing our total annual revenue opportunity could be measured in the tens of millions. For six months from October 2013 to March 2014 we held headcount steady at 9 people, even as MRR tripled, because it wasn’t time to pour on the gas.

> It was frustrating getting push-back on market size from investors, and somehow we knew if we suspended disbelief just a little longer we’d have a breakthrough… it just took time to see past the initial thrill of making money to the even bigger opportunity. Conversations from the fundraising process clarified our next vertical, which gave us the confidence to triple the team size over the last 6 months. MRR tripled once again.

> Ask Yourself: Am I spending like we’re chasing a big market, when it’s actually a small one? If you’re getting a lot of feedback that the market seems small and you don’t agree, you might need to re-frame your vision. (old vision: Bloomberg for startup investors, new vision: Google for B2B)

The OP believes she had a total annual revenue opportunity of tens of millions of dollars with her original vision but instead of holding true to that vision and executing against it, she apparently decided to change ("re-frame") her vision so that she could appease investors who were telling her the opportunity wasn't big enough to justify an investment.

While some startups really do need capital to fuel their growth, the need for capital can also be a function of one's mentality. Here, it's pretty clear that the OP is more interested in pursuing the largest, broadest and most nebulous opportunity (Google for B2B) than she is in providing a well-defined solution for a well-defined customer segment or segments (Bloomberg for startup investors). In short, the OP's need for capital is the product of her decision to manage her vision based on "bigger is better."

In short, the OP's need for capital is the product of her decision to manage her vision based on "bigger is better."

Are we sure this is her vision or that of her investors? The need for VC to generate "outliers" is wrecking a lot of really good businesses.

Per my comment, "...she apparently decided to change ("re-frame") her vision so that she could appease investors who were telling her the opportunity wasn't big enough to justify an investment."

The CEO of a company is ultimately responsible for setting the company's vision. Period. If the OP changed her vision to win over investors, she doesn't own that new vision any less. She had the ability to pursue the original vision.

There are lots of startups in Silicon Valley that have the potential to be profitable small and medium-sized businesses. They'll never get there because they are run by founders who are drinking the kool-aid and trying to turn their companies into businesses they will never realistically become. But this isn't the fault of the investors. It's the fault of the founders who lack the ability to recognize that the VC path isn't a fit for the type of company they're building.

I think it is really hard to resist the "dark side" that investors want CEOs to follow. You also have consider what happens to the company if the investors force a buyback on the founders if the company is not meeting their growth targets. Once you sup with the devil and accept outside money you really have no choice about the path you are on.

£30K a year, tax etc. on top of it. Do you do tech business or something else? Office costs, extra overhead, insurance etc. It's really hard to run a company that cheap. This is not about "offices in manhattan". Even one office in the UK around a decent place for 30 people will be quite expensive to run.

I'm just curious, is this is tech company, how many of those people are developers / designers (high skill required tech workers)? How is it really possibly to run a company that cheap in the UK?

I would love to hear the things that you do for lowering the costs.

Tech. 22 technical. 8 management. Wouldn't be hanging out here if I made coat-hangers for a living. :)

We accrued cash and bought a commercial lease with a decade to run from a bankrupt company - prime real estate in the centre of a creative city. Before here, we based ourselves out of a squat, and after we left agreed a retroactive amount of rates to pay the council to turn a blind eye to our having been there. It really pays to shirk estate agents and to instead do "huh, that building is suddenly empty - let's call the owner".

Insurance is also surprisingly cheap, so long as you indemnify yourself against consequential loss, which in our business is a must.

"Extra overhead" runs to not much - maybe a few £k a month.

Oh, and this isn't included in my figure, but is something EVERYBODY WHO RUNS A TECH BUSINESS IN THE UK SHOULD BE AWARE OF - R&D Tax Credits! HMRC cut us a cheque every April.

I'd actually rather we spend a bit more and perhaps become unprofitable for a while, as I want to invest in growth more heavily, but my partner, the loveable tightwad that he is, needs deep justification for every penny spent.

And that's the crux of it. Go into business with the tightest person you know, and spend forever fighting about it, and end up with pretty optimal budgetary decisions, as everything has to be thought/fought about.

Do you have an example of a project where you got R&D Tax Credits?

My previous employer would claim credits on all development of new products. Not maintenance of existing products, not operations costs, and not features that a customer had asked for specifically. But over half of our technical staff were building new apps to expand our reach into new markets, and the management put all of that in for credits. They'd also claim on new features added to existing apps.

There was an annual exercise where a couple of poor managers dumped the whole year's stories from the project management tool and classified them all as creditable or not. Not a lot of fun, but the CFO was always happy with the results!

$125k/month works out to $50k/yr/person. In case anybody else was wondering.

Means around £30k per employee which is reasonable for UK junior-ish dev straight out of university, but low if they're based in London (I dunno).

£30k per employee for all expenses is very low even for the UK.

Welcome to the real world. Most small software businesses who offer some small service (say, an ERP software package no one has ever heard of + support) to a small number of companies hire the cheapest devs they can find.

I am in the real world :)

30k per employee with all the on-costs is very low. I suspect that a number of these employees are part time or remote workers in low cost countries.

Nope. All full time, on site. A good working environment counts for one hell of a lot, and the cost of living here is low.

We're not in London, and we pay more than that. We keep costs down by dint of the fact that our costs are, in descending order:

- People - Hardware - Offices

We even manage to have fun, too.

I just can't wrap my head around where this "other" expense that folks are supposed to have goes.

Sure, you can throw more fuel on and grow faster, maybe, but to burn for the sake of burning, because you have to hit a number... I just do not understand. Bullshit metrics destroy so much. You just have to look at where the NHS has ended up, to understand how this rot pervades (GPs must see N patients per day. Surgeons must "solve" N cases per month. Death rates must be below X.).

I think people are just confused by your use of the word "burn". What is your fully loaded average cost per employee (total spend divided by headcount of 30 people)?

About £2.8k - £3.2k/month - it has admittedly increased over the last six months, as we've had a few expensive hires, and have taken on more space in preparation for more growth.

As per elsewhere, we admittedly have abnormally low rent costs, and virtually no other costs outside of rent, people, power, and hardware.

So £84k - £96k total spent per month right (assuming the 30 person team you said before) BEFORE you subtract revenue?

Yes that is what he is been saying.

Your numbers must be off - 80k/month for 30 people means paying <32k; that's an average and assuming hardware and offices are both zero. Good devs cost more than that in Cambridge (and at least twice that in London), and elsewhere you'd struggle to find them at all. Are you relying on hiring fresh grads or something?

Some of our folks earn >50k, others <25k (boils down to skill and experience), and we do hire grads, but also very experienced folks.

Oh - and I am off, but not hugely - has crept up to about £95k with our current headcount of 30, but it's still a gulf apart from the numbers in the article.

I don't think it's fair to make a comparison across geography. There are too many variables, such as cost of living and the employment market that may affect overhead. You can definitely make a case for whether or not starting a company in the Valley is a good idea given high costs, but that's a different argument that's also been done quite a few times over.

For example, it would be similar to me claiming your burn rate of £95k is extremely high because I'm based in India and pay my developers £7 per hour.

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