How much does it cost to start a tech company?

Originally published on the Server Density Blog.

The buzzword is bootstrapped. This means using your own funds to start a company spending as little as possible, either until you generate revenue from customers and/or you raise outside capital. One year ago I started playing with some Python code to create our server monitoring tool, Server Density, and formed the company in April 2009 (on the 6th, specifically to coincide with the day the tax year starts), but how much did it actually cost me?

The beginnings are always unsure – I was trying out an idea that I thought would be fun to do, but could also be a good product. Funding everything from my own bank account, I wanted to spend as little as possible to get to the stage where people were willing to pay me. At that point I could decide whether to continue, or withdraw.

The dates run from April 2009 – June 2009 (I backdated some expenses from the previous months), so using the power of our awesome accounting system, Xero, let’s have a look at where the costs were.

April 2009 #

Total: £862.13 GBP + $65.03 USD = £902.78 GBP

• Advertising – Google AdWords – £76.58
• Business cards – Moo – £11.48
• Domain names – £34.00
• Events – Geek’n’rolla – £81.03
• Legal (company incorporation) – £144.95
• Mobile internet – T-Mobile – £39.35
• Monitoring – Pingdom – £31.74
• Phone (calling beta testers) – Skype – £11.50
• SMS credits – Clickatell – £15.93
• Source code hosting – GitHub – $7.00 USD
• Testing – Amazon Web Services – $0.76 USD
• Travel – Hotels – £306.02
• Travel – Trains – £109.55
• Web hosting – Slicehost – $57.27 USD

May 2009 #

Total: £235.11 GBP + $517.04 USD = £558.30 GBP (at current exchange rate)

• Accounting – Xero – £21.85
• Advertising – Google AdWords – £40.13
• Advertising – ServerFault.com – $160.43
• Book – High performance MySQL (updated edition from the one I already have) £25.03
• Events – OpenSoho – £5.50
• Phone answering service – Answer.co.uk – £23.00
• Phone headset – Plantronics Voyager – £35.67
• Phone (calling beta testers) – Skype – £14.83
• Postage & packaging (sending contracts for payment processor) – £8.85
• Source code hosting – GitHub – $7.00 USD
• SSL certificates (wildcard and domain) – GoDaddy – $244.93 USD
• Testing – Amazon Web Services – $0.02 USD
• Travel – Trains – £60.25
• Software – WordPress.com (custom domain) – $15.00 USD
• Web hosting – Slicehost – $89.66 USD

June 2009 #

Total: £262.87 GBP + $144.89 USD = £353.44 GBP (at current exchange rate)

• Accounting – Xero – £21.85
• Advertising – Campaign Monitor – $11.39 USD
• Apple Developer Program – £59.00
• Clothes (serverdensity.com t-shirts) – Spreadshirt – £15.10
• Insurance (legally required employee liability insurance) – Hiscox – £14.72
• Payment processing – NetBanx – £23.00
• Payment processing – Streamline (setup fee) – £57.50
• Phone (calling beta testers) – Skype – £14.89
• Postage & packaging (sending contracts for payment processor) – £5.51
• Software – 37signals (Highrise) $2.00 USD
• Source code hosting – GitHub – $7.00 USD
• Testing – Rackspace Cloud – $9.17 USD
• Travel – Trains – £51.30
• Web hosting – Slicehost – $115.33 USD

Total startup cost to get to revenue #

£1,814.52 GBP / $2,902.87

What’s missing? #

The biggest cost is paying employees. That isn’t on the above figures because I didn’t pay myself or my co-founder a salary (only expenses, as above). Although a few of the items above could’ve been left out as unnecessary, they’re really only minor costs compared to the amount you have to pay real people. This is fine if you have lots of money (savings or external funding) but the best way to bootstrap is to have technical co-founders who can do everything you need (programming, design, graphics, etc) for equity and promise of an awesome future.

The cost of people cannot be underestimated. It is significant and not paying yourself/your co-founders only works for a short period of time. Eventually you run out of money so you need to be generating revenue by then.

What if you can’t find co-founders with these skills? Look again. I think everything should be done in house wherever possible (with a few exceptions like legal, accounting, etc).

Ongoing costs #

That’ll be the subject of a future post, as getting to revenue is only the first hurdle. Our costs are now quite different but we have the funding available to cover them.