Always New Mistakes

September 22, 2008

Why well funded startups waste money?

Filed under: Business, entrepreneur — Tags: , , , , , , , — Alex Barrera @ 12:49 pm

Sometime ago I had a conversation with a friend who asked me how much money I though was needed to get my startup going. I told him I though it would take 100.000€ to bootstrap it in the US, but that  it might be less. I still remember his skeptical face. I though he was going to tell me it was way too much, but to my surprise he told me it was way too low. I realized then that there is a great gap between bootstrappers and corporate drones. Enterprise people need like 5x to 10x more cash than what a bootstrapper needs but the truth is that this is just an illusion. It’s not true you need 10x more cash, it’s just that you aren’t used to save money.

As always, nothing is black or white and there are exceptions to this, but most of the time it’s just people flushing money down the drain without any real results. I really feel it’s because the money isn’t theirs and so, they don’t feel the pain it is to earn that money. Nothing like having your own savings at stake to think twice about spending it in stupid things.

The problem isn’t that corporate guys think this way, the problem is that I’ve seen many startups behave the same and I must say, it really shocks me. Wasting money is a bad habit, specially if you
are starting up and I think most companies don’t make saving money and resources a critical part of their company’s culture. For me it’s something fundamental in an organizations culture. Everyone should think about this, even when there is plenty of money, wasting it should be avoided.

What really strikes me is that the same behavior can be observed on peoples lives. Plenty of people ask us how are we (me and my girlfriend) able to live the way we do. The answer is that we don’t pay for stupid things. When someone tells you that they’ve spent 600€ in a pair of shoes I just roll my eyes. And don’t get me wrong, if you can spare 600€ a buy some awesome handmade shoes, please be my guest. The problem is that 99% of the times, people just can’t afore to do that and they buy them either way, which I must say, it’s just stupid if you ask me.

Sadly the only times I see companies trying to save money is when they need to bump their profits for the next quarter. The problem with this is that it’s too late. Creating a culture takes time and you can’t just reverse crazy spending overnight. Employees should feel that if they waste resources it’s their own payroll money they are wasting. The more you save, the more you get back at the end of the month.

And yes, I know, some readers are thinking, hey but I do save and my payroll is the same, instead those greedy bosses of me are earning much more to my expenses. This is both, true and sad, that’s why new entrepreneurs should start thinking about this issues from day one. Transparency is key for this to work and the problem is that not everybody is willing to be transparent. I would love to think
that money doesn’t changes people, but it’s not true, but if you have some solid guidelines and stick
to the basics I’m sure we could do much better.

Have you seen crazy spending in your company, in your startup? Tell us about it!

Image credits: http://www.savingadvice.com

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6 Comments »

  1. It’s true – especially today that a business must be streamlined and efficient to be successful. But image and the appearance of success has been the corporate way for a while now and that’s what costs the big bucks. The times they are a changin’.

    Comment by ithaca real estate broker — September 23, 2008 @ 5:35 am

  2. [...] this should be doubly true for startups, but it often isn’t. Yes, your money is banked and if you’re VC funded, as opposed to angel or bootstrapping, [...]

    Pingback by MAPping Company Success — September 23, 2008 @ 12:38 pm

  3. Yes this is very true. I am a boot strapper, people are amazed at how much I can do with how little. There are so many things that you can do your self or simply do without until you really need them later.

    I started with 10k and kept reinvesting. A guy I know quit his corporate job and started a company much like mine, in less than 9 months he spent over 300k, and then he was out of business. He spent 20k on hard wood flooring alone for his showroom. I just bought carpet for mine.

    Jason Dragon
    http://blog.capitalactive.com/

    Comment by Jason Dragon — September 23, 2008 @ 1:45 pm

  4. [...] Blanco o Rodolfo Carpintier. Es el blog de Alex Barrera Always New Mistakes.  Su última entrada Why well funded startups waste money? me ha parecido muy interesante y que trata un tema que se ha comentado en muchas ocasiones sobre el [...]

    Pingback by El blog del piloto » Blog Archive » Recomiendo leer - semana 39 — September 27, 2008 @ 12:27 pm

  5. I saw this firsthand. I once worked for a start-up company that just burned through money. An office downtown instead of in the suburbs, new furniture (granted, from Ikea), lots of traveling (and frequent last-minute changes), lots of going over cell minutes while the landline sat unused, a PR firm in New York City (instead of a local one)… it was just a mess. Unsurprisingly, they burned through their cash way too quickly – and then were scrambling to get more just as the economy tanked.

    Comment by Katie — December 19, 2008 @ 1:14 pm

  6. Hi Katie,
    Wow yours looks like a very good example of what I’m talking about.

    I still don’t get why the senior executives don’t think of that money as theirs :( Maybe it’s because they have no liability, in Europe if you goof badly because of mismanagement they’ll go after you and your personal assets.

    Comment by Alex Barrera — December 19, 2008 @ 1:40 pm


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