With Snepo, much like many other startups, we have endless faith in our great ideas. Unfortunately that didn’t mean that we were able to just run out the door at the beginning. Money, that stuff that we’re all interested in making gobs of (while changing the world of course) was also necessary if we were going to turn our idle chit-chat into a real company.
If you find yourself in this position or if you’re getting ready to take that brilliant idea to market you have one or more of the following options available to you:
There are benefits and drawbacks for each of these as you may suspect. Let’s examine them in more detail.
Seems like a good idea at first until you realise that in order to save enough money to live and pay rent for a year would require you to already be making at least double what you spend. Clearly going a pure savings route is just not in the cards unless you’re already in more money than you know what to do with. Alternatively you could be independently wealthy from the get-go, it worked for Bill Gates and it could work for you.
Assuming you’re not going that route saving enough money to go without salary for three or four months is still a must. When starting a new business nothing is for certain save for the certainly of going longer than you thought without pay. So if you’re entertaining fantasies of putting money down on a house, think again. You can be a homeowner after you make it big.
On one hand this can be a spectacular option. The loans are cheap and the repayments are easy. Unfortunately there looming problems that are all too obvious. First, there’s the emotional baggage of carrying debt to a loved one or friend. This can be intimidating depending on your family’s financial status or emotional health. The other factor is that if you do run across hard times the inability to repay loans can wreak far more havoc on your life when you owe Maw and Paw money than when you owe The First National Bank of Renaldo several months salary.
A slightly kinder compromise to the notion of borrowing several months salary from your family and friends is living off of your partner. If you have a supportive spouse and are willing to take your lumps then this is a viable option and probably one of the better ones out there. Unfortunately none of us had that option, my partner being a full time student and both Arse and Ben’s other halves being heavily pregnant when we decided to commit to Snepo. Take it if you can get it, mate.
Ha! What a great idea, somebody gives you and the other founders a year’s salary to make your idea a reality. All they ask is your heart and soul and the ability to immediately replace you with people that actually know how to run a business after you’ve begun to produce meaningful IP.
The truth of it is that it really depends on your product. If you’re selling a service based software solution where there’s a huge advantage to the first mover then you’re best bet is probably the VC dough. On the other hand if you’re selling a software product and you’re not required to make everyone in the world a user right this minute then it pays to spend that VC courtship energy on actually developing your product.
Unfortunately, in many cases the search for funding takes precedent over the business itself. You can end up spending more time on your elevator pitch than on your products. This is my intuition anyway, perhaps after a while I may regret our decision to refrain from chasing venture dollars. Probably not though.
Ahhhh consulting, that double edged sword. Consulting can pay the bills ohhh so well. It’s relatively easy work to get these days with the market rebounding a bit, and who can turn down consulting rates? It all comes at a price though. If you’re consulting then you cannot be working on your big ideas full time. This is a lot more serious than it sounds, being a consultancy is great if that’s the business that you’re in but if you’re keen to build a product it has the ability to weigh you down with the siren call of steady income.
It doesn’t have to be all doom and gloom though. If you set a quota of time per week that must be spent developing your product and you stick to it then taking consulting work is about the best way for a startup to stay started. That’s not all, if you choose your clients wisely then you can end up in a good position to develop future markets for your product.
In the case that you have a client and the job you’re doing could benefit from your shit-hot automatic penguin classifier algorithm then be up front with them. Tell them that you’re working on a product that may be useful to them and that in exchange for a reasonable licensing fee you will be willing to use it in their solution. Be clear about the state of it and you could end up killing a few birds with one stone.
When Arse, Ben, and I left to start up Snepo we were certain that we’d not even see a dip in pay (HA!). We had lined up two different consulting clients that were both vying for our attention. Both of these parties were big enough to provide us with our current salary rate for several months. Well, sure enough- we were along our merry way and the client that we chose to deal with stalled our first payment. Heh, no big deal right? Well, this client kept stalling and we finally ended the relationship before it had really begun. Meanwhile we were busy lining up other potential customers and managed to land enough paying contracts to keep us afloat.
However, those contracts paid Net 30 which is actually pretty speedy for larger corporate clients. That means that we get paid 30 days after we invoice. We deposited money into our business account for the first time about a month and a half after we opened it.
The lesson is to make sure you can absorb the loss of income right away, don’t run out the door to startup a wanky “web 2.0” company, eschew consulting work, and neglect to be able to support yourself. I couldn’t imagine very many things more crushing than having to give up and get a real job being just a few weeks away from being self sustaining.