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How I Think About Monthly Burn As A Startup Founder

In the past few weeks I have had more than one interesting conversation about the level of burn (or net cash outflow) I am experiencing at Task Pigeon on a monthly basis.

None of these conversations have come with a malicious intent, or a desire to “put me down”. More so, they come from an point of interest, or perhaps concern.

As a result, it caused me to pause and reflect on how I think about the cost of running Task Pigeon, and naturally I want to share my thoughts.

Firstly, I think this concern is a byproduct of my transparency. I publicly share my revenue, expenditure and user numbers. This makes it easy for you, or anyone else in the world, to see just how much money I bring in, how much money I spend, and where user numbers currently stand.

This is in stark contrast to how most private companies operate. They keep everything close to their chest and you only hear how they are doing when they raise money, shut down, or choose to publicly release some figures because it is in their interest to do so.

In addition to that I have had numerous conversations with founders, perhaps even as much as on a weekly or fortnightly basis, where they confide in me how much they have spent on their product/service to date and where they currently sit with regard to its revenue generating potential or otherwise. Some of whom have spent tens of thousands and haven’t even got their product to market yet.

There are also companies where it is fairly easy to do some back of the envelope maths and work out how much they are burning. You can do this for companies that publicly share user numbers and have a stated fee they earn per user/team. Then look at the number of employees they have as a rough proxy for expenditure. Sure, it’s not an exact science, but you can get a pretty good idea.

If each of these companies were transparent and shared their figures on a like for like basis as I do, I believe it would put the level of burn at Task Pigeon in a much clearer context, and in my opinion highlight how capital efficient I have been, and can be.

An Example Of Capital Efficiency

How I Think About Monthly Burn As A Startup Founder - Piggy Bank on Calculator

In fact, in each of my past businesses I have always adopted an approach that recognized the value of a dollar saved, as well as a dollar spent. For example, with my first business, a retail surf store that I purchased as a sixteen year old, one of the biggest issues we had was a lack of brand new surfboards in stock.

The past owners of the business only had around 10 – 15 brand new surfboards in stock at any one time. They were expensive to buy (even at wholesale), typically costing around $500, and would only sell if the board matches the specific requirements of the user. For those who don’t know surfing everything from the shape, height, thickness, width, fin set up and more can come into play.

This mean that often we would have a willing purchaser in store, but no board to sell them. I went out and negotiated with surfboard shapers in the area and increased the wholesale value of our stock by $25,000, all without putting a dollar down myself. I instead negotiated to sell them on consignment.

Virtually overnight I increased my sales potential all without investing, or risking, a dollar of my own money.

Operating As A Non-Technical Founder

How I Think About Monthly Burn As A Startup Founder - Climbing Mountain

There is one area of Task Pigeon that accounts for 95% of my expenditure and that is paying for developers to actually build the underlying product.

I 100% understand why people make the argument for having a technical co-founder. If money dries up, then you still have someone who can add to the product and take it forward. All they have to put in is “sweat equity” (i.e. time).

But that isn’t me. I have written previously about being a non-technical founder and don’t believe you need to be a tech founder in order to start a startup. One of my biggest inspirations in building a transparent startup was actually Alex Turnbull, a non-tech founder of Groove HQ who is on his way to $10 million in ARR.

As a result I chose this path. I managed to launch the MVP (after extensive testing of the idea) for less than $10,000. Sure, $10,000 is a fair bit of money, but I know some technical teams that spend more than that getting a basic MVP to market.

Sometimes people who have the skills to code themselves, and who pull together a similar amount of money, blow it on things that are not going to directly impact the success or otherwise of their business. For example they see the $10,000 they put in and go and buy a couple of new laptops, blow $1k on pre-launch Facebook ads and purchase a few new software tools and their money is all but gone.

That $10,000 I put in got Task Pigeon to market and helped prove that people would pay for the idea. In fact, it directly resulted in more than $6,000 in revenue from our initial launch campaign through Stacksocial.

My Burn Did Increase

How I Think About Monthly Burn As A Startup Founder - Shark circling Money

Following this period I found myself in an interesting situation. You can see that people like your product enough to use it as it is, but you can also see how adding a few features and tweaking things here and there would increase that number.

In addition to that when we launched our MVP most of our features were available on both the free and paid tier. I always knew money would have to be spent to add new features that would help in increasing the conversion of users to our paid/premium tier.

What I did not foresee was the situation where I lost my original developer so quickly. I have written about this previously so won’t go into the details. Essentially though we came to the conclusion that they had insufficient time to balance their work at Task Pigeon with their other job requirements.

In the end it worked out for the best as I bought on board a great new team. There was a period however where I needed to decide on whether to invest in Task Pigeon, perhaps even more so than I anticipated, with the belief that it will pay off or stick with the status quo and take a more incremental approach.

I took the first option and for a period of two to three months my team were busy building the V2 of Task Pigeon that would overcome some of the technical issues inherent in the structure of the initial MVP. This period was frustrating for me as there was not a lot I could personally do as a non-technical founder to take the product forward. I did however have to trust in my belief in the product, the research I had done and the new team I had.

The Payoff

How I Think About Monthly Burn As A Startup Founder - Payoff

This decision did pay off. We launched the V2 in August and very quickly had our first paying users (on a MRR basis). We wouldn’t have got those paying teams without the additional features and improved user experience so I believe my decision to invest here has been validated.

Would I like more paying customers? Of course. Would I like user numbers to be growing quicker? Of course. But these are all things that fall on me as the Founder and are something that I work on every single day.

Coming out the back of this process its easy to look in from the outside and feel that my burn is out of control or spiking like crazy. But in reality I had a team of three, highly competent developers, who when working full time on Task Pigeon cost less than $8,000 USD a month. And even then it was only for a relatively short period of time.

Burn In Context

How I Think About Monthly Burn As A Startup Founder - Burn In Context

This brings me to the final point, that burn is all about context. Three developers for less than $8,000 a month is extremely cheap, when compared to the rate of US or Australian Developers.

To get that same level of talent here in Australia I would probably need $25 or $30,000 a month once you count superannuation and all the other costs of employees here. If I needed to come up with that kind of money on a monthly basis Task Pigeon simply wouldn’t have happened.

In addition to that I believe there is a cost of not doing what it is you truly want to do. Had I saved that $10,000 for the MVP and never built Task Pigeon or never hired my new team, sure I would have had more money in my pocket today, but I wouldn’t be fulfilled as a person or individual.

I love building companies. It excites me. I wake up every day wanting to work on Task Pigeon. The cost of not going after this dream would cost me more than $10, $20 or even $30,000 when I look back on my life. And while I certainly don’t have hundreds of thousands to throw at this idea I am in a fortnuate position where hard work, sacrifice and some luck from the past has given me this opportunity to go after it.

I would much rather show that I believe in myself and my idea than be like some other people I have spoke to in the startup ecosystem. They say they have a great idea. They say they want to build a startup. But they will only do it if someone gives them money first. Unfortunately, the world doesn’t work that way so if I expect people to invest in Task Pigeon one day I need (and want) to show that I am willing to invest in it first.

How Low Can I Get My Burn

How I Think About Monthly Burn As A Startup Founder - Time is Money

As I said at the top of this article I believe those asking about my burn were doing so because they genuinely care and / or were concerned about the numbers. But those numbers represent a point in time, not an ongoing monthly commitment. This is one of the other benefits of outsourcing the development work.

Task Pigeon has certainly got to a point where for now there doesn’t need to be as much development work going into the platform. This cuts my burn down significantly. In fact, I would probably only spend $1,000 – $2,000 a month here to keep things ticking over as it currently stands.

If I chose to though I could pause development work and run Task Pigeon on the smell of an oily rag. Other expenditure is primarily for some blog posts I pay to get written, a few other SaaS tools I use and other ad-hoc items. Looking at this my expenditure would be a couple of hundred at most, and could probably even be lower.

Of course that means product development would slow but the other thing people seem to forget is that having a co-founder or not, isn’t something that has to be decided at the point in company formation.

If it came to it, and I believed that I had found someone who would add value to Task Pigeon I could always bring on a co-founder. Unlike most non-tech founders however, I wouldn’t be someone just pitching an idea. I would be able to go to them and and say hey, I know there is a long way to go, but I have been able to achieve a, b and c. As the developer you get to start at day 100, rather than day 0, and therefore there is a lot less risk for you.

My Final Thoughts on Burn

In summary I believe that all startups should be as capital efficient as possible, whether you have in house technical expertise or not. Certainly, if you find yourself in a situation where you have a competent tech co-founder then your burn should be lower. Especially when you are just building your MVP.

However, not all of us are in that situation and it is up to you to decide how much chasing the vision for your company and life is worth. In my mind spending the $10,000 to get to the MVP was worth it. It was then also worth it to continue to invest in the product based on the feedback and user numbers I had seen at the time.

Will I continue to burn the $4,000 odd a month I reported in November? No, but I don’t think I need to. As I mentioned the product is vastly improved since the V2 and for the time being its about tweaking and refining a few things around the edges, with another feature or two to come in the new year. Thus my burn will drop considerably.

At that level I can sustain Task Pigeon almost indefinitely. However if I can keep growing paid users, and the engagement statistics I track point to a reason for increasing burn again (i.e. to accelerate growth or secure a big client) then I will do so.

Also published on Medium.

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