Observation on How a Self-Bootstrapped Startup Vs a VC Funded Startup Spend Money
Aditya September 26th
I recently observed some cultural difference between a self-bootstrapped, profitable, and growing Web startup vs general VC funded Web startups about how they spend money. I thought it's a great tip for all budding entrepreneurs about how to set the culture in the company.
My wife recently joined a web startup, which is a self-bootstrapped and highly profitable, and which is also growing very crazily. It's still a young startup with small engineering team. When she joined, she expected that they will give her a laptop. But they didn't give it immediately. They first asked her and made sure that she needs a laptop and just a desktop is not enough. Once they agreed on giving her a laptop, they neither ordered a MacBook Pro nor an IBM ThinkPad. They ordered a Dell Lattitude laptop.
They kind of hinted her as well that they are spending money wisely. And in fact, almost everyone in her company have similar laptops. Fortunately, my wife wasn't that disappointed about it. Of course, she would have loved it if she would have gotten some cool laptop. But rather she appreciated their culture and thought process about spending money wisely.
On the other hand, we have these Web2.0 startups without any business model, who are surviving only on VC funding. I have seen a common trend in Job advertisements of these startups. One of the benefits they mention is – you will be provided with a cool 4GB MacBook Pro with 2/3 22” Monitors and so on.
Of course, it's a great perk for a potential employee, but I don't understand what founders of such startups think about money in their bank while throwing away on such luxurious things. In general, they can save $1000-$1300 per employee if they stick with Dell laptops when they are in early stages and still get things done. When they are not earning anything, and burning someone else's money, how can they spend crazily on such luxurious things?
You might also argue that if employees are happy with a MacBook Pro, then it might improve their productivity and is actually beneficial for the company. There might be some truth in it as well.
But then I wonder why these self-bootstrapped and profitable startups don't think that way? Why don't they think that spending more money on employees' luxurious needs will improve their efficiency?
I think it's because it's their own money, so they feel what it takes to earn that much money before they spend it. On the other hand, probably these VC funded startups don't realize what exactly earning money is.
I might be wrong on this whole aspect. This is just my external observation about how two different companies think about spending money. It will be interesting to know the thoughts from startup founders who are dealing with this situation. What they think about this aspect and what culture they follow? If you have any opinions, then please do share in the comment section.
I guess its always easier to spend someone elses money!
Sushil
27 Sep 08 at 11:49 am
Adi, I think you are comparing 2 different breads here. There are startups that make awesome profits with good technology and there are startups that have huge mind share, are way too cool and consumer centric with killer technology.
Both solve the basic problems but the ones with bigger mind share are the ones you would crave to visit every day. Such companies really need to go a step further to retain employees, attract /steal them from their competitors which is certainly not an easy task. Remember, for them employees are the biggest asset (as you already know they are burning money
) The least they can do is make their employees as comfortable as possible. A one time expense of 2000$ per employee is peanuts to achieve this..
snehal
27 Sep 08 at 12:31 pm
@snehal,
I agree with you. That’s why I said, there might be some truth in “keeping employee happy” part. But those profit making companies also want the best talent and want cooler product and more users.
Yes, sometimes $2000 or so look peanuts. I agree. But at the same time, think about that money when it’s going from your pocket. Then we think twice before spending it.
The bottom line is, we just have to keep this thought in mind that VC money is not there to spend. We should treat it as our own money. At the end, if buying expensive laptops make sense, then sure, go buy it, but just make sure we think twice before it.
Aditya Kothadiya
27 Sep 08 at 2:07 pm
I liked this post, comments are as follows:
In the long run, it is seen that those who spend wisely are better to deal with economic downturns. Their employees are never accustomed to spoiling comforts.
On the other side, many geek type or creative type employees value coolness. Thus, this spending can be seen as justified for business to function.
There can be cheaper alternatives to keep these employees happy as well.
Finally, one has to see an unbiased view on company priorities at that stage, and make the decision.
Thus, the word ‘wisely’, and not ‘frugally’ is very aptly used in this blog.
On the whole, I agree that self funded startups are wiser with spendings and take less financial risks.
Varun
15 Oct 08 at 1:02 am