5 things to do when moving into startup mode

Posted on August 22, 2011

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In the next 6 months, 3 projects are to be finished:

  1. An Android application to log your daily consumption – For a specific target audience and possibly with two or three spin-off products for people who are on a diet
  2. HotForestGreen – A framework for real time event handling over multiple devices. Also shortly called an “Internet of Things framework”
  3. XYZ – Which is under a Non Disclosure agreement and thus I can not talk about it.

Bootstrapping = moving into “Startup mode”

All three projects are bootstrapped and have no external investors. There are several reasons for that:

  1. Control – When people invest with the expectation of a Return on Investment, something needs to be there in exchange. For most online services this “something” is user generated data. Then – since you work with other peoples money – there might also be pressure from your investors to move into a specific direction.
  2. Time – I am not in a hurry: “to be the first”. I learned to choose a more stable and long term stand point from my past failures.
  3. Dedication – The services and products themselves will prove to be worth my future attention.

This means that the only money I can spend is from my own reserves. And these reserves are limited (there is no secret or magical source of money dripping new money into my life).

This limitation of money means that I am moving into – what I have called: “Startup Mode”

5 things to do when moving into startup mode

Here is the short:

  1. Cut costs – A simple one on paper, but very hard to do in reality. Looking at the yearly totals might help to be really rigorous on places you otherwise would be more forgiving: “yeah, but my monthly donations to ‘better homes for cats and dogs’ is just 20 euro”, where there might be 5 other similar causes you do the same thing for.
  2. Define budgets – Know how much you need as a minimum to pay all your bills (after cutting all unnecessary costs). Know how much additional costs you have to support the minimals of your standard of living and your startup. Set that as your base line.
  3. Cut obligations – Everything you do that does not support building on your startup has to be considered a waste of your time. As you can only spend that time once.
  4. Plan ahead / set deadlines – Make sure you know what to do and what to expect (of which one thing is you running out of your reserves) beforehand. Set deadlines stating when what should be finished. They help to keep you on track.
  5. Have a “plan B” – Things can go wrong. Things can turn out different from what you projected and expected. A “plan B” is your financial contingency plan to reel in new money without creating debts.

1: Cutting cost

As time passes, you build up a list of regular expenses which are more “habitual” than required. Like:
  1. Subscriptions to services and magazines – Stuff you do not really need, but you use and keep out of convenience.
  2. Stuff from previous endeavors – In my case contracts for telephone lines and internet to the old office and security audits to my Server
  3. Stuff (and snacks and drinks) you buy: “because you can” – Like: “going out for dinner instead of cooking your own meal” and “buying a replacement [something] because you can not wait until you are home”.

Individually the expenses might seem like small potatoes: 5 euro here, 10 euro there, but when you add them up, they might grow to several thousands of euro per year.

1.a: Grouping expenses

One of the first tings to do (if you did not already) is to group expenses, and be honest about it. What is part of what?

I group and subgroup expenses as:

  1. Private – All my private expenses, including:
    1. Housing – My rent
    2. Food – Stuff I buy at the supermarket
    3. Dinners outside – When I go to the restaurant
    4. Clothing – For when I need new stuff
    5. Cash – Which includes all my cash withdrawals and which I consider “non traceable”
  2. Business – Which include:
    1. Marketing – To let people know I exist
    2. Communication – Including telephony
    3. Internet – Including my Server and Hosting
    4. Equipment – Like a new hard drive and stuff I need to do my business
    5. Rent – For office space

1.b: Looking at the yearly- and long term totals

If you are lucky like me, you can generate overviews per year and over several years, showing you how significant or insignificant certain spendings are per group and sub group. In some cases this can be a complete eye-opener. Like the 3000 euro I spend on insurances per year, adding up to almost 15.000 over 5 years. (And that is only for all basic things.)

Especially when you can see those totals over multiple years, you can see where your “frivolous” “small scale” spendings have created a long term negative impact on what you could have saved over this period of time.

In my case I uncovered 4 individual posts on this long term overview as “unnecessarily high” and a target for heavy budget cuts, where I would otherwise have been more forgiving to those expenses.

2: Defining budgets/calculating time

The other side of cutting cost is to define budgets. I do this by stating:
  1. The minimum required – These are all the costs you can not avoid, like electricity bills, rent/mortgage, food and whatever else you have
  2. The average additional costs – As I do not want to live on dry bread all the time and I have a life, this includes the occasional dinner outside of the door, the travels I make for my work and to the places I have to go and the expenses I do to have some fun / to avoid like I am becoming a mr Scrooge.
  3. The costs that come from the startup – These are the additional costs the startup will bring. This might be: renting my own Server, buying specific software to do specific jobs and so on.

This adds up to a total yearly budget “I can not avoid spending”. It is both:

  1. A limiter – To avoid I still spend it like I earn money
  2. A re-assurance –  That my reserves will be sufficient for X amount of time.

2.a: An example – budget needs

Lets assume your budget looks like this:

  1. Required: 15.000 euro per year – housing, electricity/water/gas, food
  2. Additional costs: 5.000 per year – clothing, dinners, fun
  3. Costs from startup (projected) : 10.000 per year – equipment, services, hosting
  4. Sub total per year: 30.000 euro – Which includes the above.
  5. Unforeseen/buffer: 10.000 euro – Stuff happens, bills are sent that you did not expect. Things turn out more expensive than predicted.
  6. Grand total per year: 40.000 euro – Which is what you can and can expect to spend

2.b: Defining your available budget

Lets assume your savings are 50.000 euro, of which you can- and are willing to spend 30.000.

2.c: Calculating the time you have

This gives you: (budget:30.000 / required by expenses: 40.000) x months in year:12 = total time to build: 9 months Before you will have to reconsider and start to work on (new/additional) means of income.

It is (and do not make it) any more complicated than this.

The bottom line of this exercise is: (assume that) you can not spend more than you have.

And if you do spend more than you have, you will create extra obligations for afterwards. In this case a debt to someone else. In my experience, that is something you do not want or need. At all.

3: Cutting obligations/budgeting time

Like money, you can spend time only once. Every hour I spend on something else but the startup projects is endangering my deadlines and my budget.

Obligations are time-eaters. Each thing you are “obliged” to do, from going to the sports school to tending meetings of fellow geeks, going on holidays, serving clients and doing ad hoc work for others will cost you.

Here are some steps to take:

  1. Rounding up old jobs – Whatever is running from the past, might be reduced to a minimum, or stopped as a whole.
  2. Cutting all activities that do not deliver benefit – The economy of time and time spent is that whatever you spend should return something of equal or added value. Anything that does not do that (including: “watching television” and: “reading my Twitter feeds”) can be cut.
  3. Not taking any new gigs until a certain time – Although it might be – and sometimes is – tempting to say “yes” to a new commercial gig (new money coming in!) they will cost time.
  4. Reserving working time in your agenda – I tend to reserve my working time in my agenda and log whatever happened (instead). It helps me in two ways:
    1. To keep track of What I did When – Handy when you reach the point of: “what the fuck did I spend my time on until now?”
    2. To make sure I keep focused – Some days you just lose to other stuff, or feel that “going to the beach” is a better idea than “work on the project”. Having the next days planned helps to help you stay committed to your plan.

4: Planning ahead and setting deadlines

  1. Use your agenda – To project your day to day activities
  2. Write a one page statement on your budget – How much is your reserve? How much can you spend?
  3. Define when what should be finished – The more milestones you define (but not too much either) the better you can check your own progress. One way to do this is by using “time boxes”. Each Time Box contains a specific set of functionalities or development phase with a very specific result, made in a very specific time.
  4. Define the deadline where you need to get new money in – At some point your money reserves will be spent. At that time, you need to have either income from your startup, or a: “plan B” going.

5: Having a “plan B”

You always need a “plan B” in case something unexpected happens, or your new business does not take off as expected.

This “plan B” can be summarized in the following question:

  1. How can I earn money fast and in a short time when things do not work out? – In my case I start hunting for freelance gigs in the areas I am qualified in.

Concluding

This is in short the five step plan I follow when moving into “startup mode”. It helps me keep things sane and avoid me taking more risks than needed. But also to make that extra mile when things went slower than expected.

In most cases the main motivation to make the deadlines for what I have planned is that I run out of my reserves. And so the question: “how do you keep yourself motivated to work?” is answered by these two components already mentioned:
  1. What I have planned (to make) – Which is very concrete in specifications and goals it should help achieve
  2. The limited time I have to fulfill all the requirements of (1) – Which is why I continue to be motivated to get out of bed, get behind my computer and make those specifications work.

In general, the hours I work are between 8 to 10 to 14 hours per day, for 6 days in a row, the amount mostly depending on:

  1. Other activities
  2. Internal deadlines
  3. Being on a roll

In reality 3 out of those 6 days are broken by 2 hour activities like “going to the sports center”, to avoid I turn into overdue cabbage as a result of my sitting profession, so the 10 hours I spend (at least) behind the computer per day can become reduced to 8.

In days where my focus is close to zero, that time drops to 6 and even 4 hours per day.

If you are doing a startup, or contemplating doing one on your own budget, I hope this post gave you some insights on how to pull it off within controlled measures.

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Posted in: Business