Costs involved in starting up

May 20th, 2009 by Prateek Dayal | Print Costs involved in starting up

When we started Muziboo two years back, we had no idea how much money was needed to get a company off the ground. Both Nithya and I had our day jobs and we never consciously worked out the finances. We started to think about money only when we went full-time and eventually went broke. Like most people who have no entrepreneurial experience, we only thought of hosting costs (and were wrong there too!). During the course of two years, we have realized that even though its possible to bootstrap a startup cheaply, you need substantially more than $0. Here are some of the costs we have encountered on the way

Hosting & Backup Costs

Depending on how fast your site grows, you will have to get atleast a VPS server and eventually a dedicated server. Shared hosting does not work out most times for anything serious. For a VPS, you can expect to pay around $50 a month and for dedicated hosting, something around $150  a month.  You will also need to invest in backups. We backup all user data (mp3, photos) and database dumps at S3 using s3sync. You can always backup locally on your harddisk but you need to consider how much it will take for you to restore all the data over your DSL connection. You would also wanna signup for a service like pingdom to receive sms alerts if your service goes down.

Apart from hosting and backup costs, you may have to spend on code/ticket hosting. You can always host your own svn/git and trac but its always better to outsource that kind of stuff. When you are starting with a small team (1/2 people), you can expect to pay $5 – $10 a month.  Putting everything together, you can expect to pay around $200 a month on your hosting needs (once you achieve some reasonable scale).  This comes down to about $2400 a year or Rs 120,000. Overall, you can expect to spend around Rs 130K to Rs 140K a year on your hosting related needs.

Chairs & Desks

If you are gonna be working fulltime on your startup, you will have to invest in great chairs and decent desks. You cannot work on a bean bag or your dining table every day as its gonna kill your back. We got two simple desks (Rs 1000 each) and two good chairs (Rs 3500 each). So for two people, expect to pay around Rs 10,000. You may also wanna invest in a whiteboard to make sure you have a place to discuss stuff. A decent sized board would cost around 3k.

Computers & Peripherals

You will need to get two desktops (or two insanely great laptops). I personally find working on laptop for long hours very hard. Depending on what you buy, you will need to spend atleast Rs 25,000 per person. Over time, you may have to buy better monitor or better keyboard (the Rs 500 keyboard sucks if you work 8-10 hours a day). If you are buying desktops, you will need to buy a 1KVA UPS which should cost around 20k. If you are buying laptops, you still need to buy a small UPS (Rs 3500) to power up your modem and router in case of power failure. Total costs for this kind of setup should be atleast 80k.

Legal Costs

You will need to get some legal documents in place. You will need Terms and Conditions and privacy document written up by a lawyer.  Lawyer costs vary a lot so I can’t really talk about any estimates. It depends on what business you are in and how much work the lawyer will have to put in to get your documents ready.  You should still expect to spend atleast Rs 25,000 on this . You will also have to file with the copyright office in US and register a designated agent for DMCA complaints with them . This process costs $80 (one time) and more details can be found here. This is absolutely necessary if you have a site where users are going to put up content. Filing this document makes sure that you can’t be sued without being given a chance to remove the offending content from your server first.

So overall , you will need about 2.6 lakhs in the first year to get your venture off the ground. Since this does not include any salary and office rent, you would need sufficiently more. For a two people startup, working out of a house (Rs 10,000 a month) and living a very basic life (Rs 20,000 a month), you will need 6 lakhs a year. So overall, you need about 9 lakhs worth of investment to get even an internet startup off the ground.

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This entry was posted on Wednesday, May 20th, 2009 at 1:58 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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38 Comments

  1. pranav
    May 21 09 at 1:59 am

    hey prateek,
    nice put but i wanna how do you guys make money.
    and second how do u spread the word about your website.

    i mean i have a website and if you can share it it with as to how do u get ur website out there will be nice.

    as of now we using social media marketing i just want to wat elae can be done.

    cheers
    pranav@bluebustees.com

  2. Shashi
    May 21 09 at 2:29 am

    Brilliant!

    You may want to add up the promotion costs which includes marketing costs, attending startup events, etc.

    One could cut down the personal expenses if two founders stay together. Of course, sometimes it may not be possible.

  3. Prateek Dayal
    May 21 09 at 2:39 am

    @Pranav: Thanks for your comment and questions. I will do a blog post soon on those issues. SEO is certainly something you may wanna look at to get the word out

    @Shashi: Thanks for your comment. The reason I did not write about promotional costs etc is that people always talk of $0 marketing. I wanted to show that even if you have zero marketing spend and you do all the development yourself, you still need significant budget to do a startup fulltime.

    I agree that you can cut down the personal expenses a little bit but generally you can’t bring it down substantially w/o affecting your quality of life (and in turn your productivity). In my experience, I have seen that two people need around 40k a month to live in Bangalore. Ofcourse moving to a cheaper city can bring it down a bit.

  4. Siba
    May 21 09 at 3:25 am

    It will be great if you do a blog post on your ideas of marketing a startup; I agree that people have zero marketing budget but there would be some investment on this front too..so would be interesting to understand how much one should keep aside for marketing.

  5. Random Guy
    May 21 09 at 4:22 am

    Nice post. I’ve been working on my startup for last 4 months or so. The only thing I’ve spent on is hosting costs – about $50/month. For everything else – computer, desk, chairs, etc I am using old stuff at home. Haven’t incorporated so no legal costs as well.

    I am thinking of moving to one of those virtual offices by Reliance. They offer good work environment – Desk, Chair, AC, Internet, etc. It doesn’t cost much (5k/month). Do you think its a good idea. Or should one avoid that expense as well.

  6. Satyajit
    May 21 09 at 4:36 am

    Gr8 article … I know sometimes entrepreneurs do things so much out of passion that, they even go through financial hardship to follow their passion. Hope same is not the case with you, hope its profitable.
    Talking of marketing, you need to spend $0 if you can convert your users to do marketing for you. I know I do it, because the service rocks! And I know many other users are using Facebook, Twitter to spread the word as well.

  7. Prateek Dayal
    May 21 09 at 4:42 am

    @Random Guy: It all depends on how well you can work from home. Personally for me, the first one year or so, it was very productive working from home. After that I wanted to move to an office but found it expensive. I ended up making some changes to my home office and have been able to work well since then. So in the end, its all about how much productivity gain you will get by spending that 5k a month. You are the best judge.

    @Satyajit: Thanks for your comment. Certainly users like you help us spread the word more effectively than an adwords campaign would do :) I think the same would be true for gotclues.com too.

    As for profitability, we are not yet profitable but we make enough to cover the cost of the service and some part of our monthly expenses. I think another year, we should be in good shape.

  8. saif
    May 21 09 at 6:10 am

    good post…brings to perspective the “behind-the-scene” problems encountered.looking forward to more such practical posts.

  9. Praval Singh
    May 21 09 at 10:40 am

    Indeed a good sum up Prateek!

  10. Wilfred Bouma
    May 21 09 at 3:10 pm

    I have seen through five projects under me and I have found that if you have a brilliant idea then you don’t even need to spend a money. For me, making five HTML templates doesn’t mean a startup. Good luck with Muziboo!

    -Wilfred

  11. ankush samant
    May 22 09 at 12:18 am

    Nice nice!! You summed it well in simple terms.
    some points:
    1. There are many hidden costs and intangible costs also involved whihc are tangible once one gets into it.
    2. Home office looks good but many landlords don’t allow that. On top of it if it is a registered company then many places have legal restrictions on running an office from residential palces.
    3. Shifting to a less expensive palce seems to be attractive. But what will ahppen to your networking, which is the topmost pripority of nay start up? So you need to stay at a relatively expensive well networked place like Bangalore.
    4. Specailly for @pranav, @siba and all those who want some easy tips for marketing. Understand your customers well. Nothing more nothing less. Everything except this is very different fo every site. You can get an example from Muziboo but what worked for them may not work for anyone else. So beware of implementing someone else’s ideas! Bring out your own.

    Good luck prateek and nithya :)

  12. Rohan Almeida
    May 22 09 at 2:56 am

    Very nice and open post. Enjoyed reading it. All the best!

    –
    Rohan

  13. Nilesh Trivedi
    May 27 09 at 1:05 am

    Bang on. Great post :)

    The idea is to do a less-risky business to fund a high-risk one, while not ending up getting tangled in the less-risky business itself.

    Sorting by risk, the order would be corporate job, consulting, service business and product startup. Keep moving on towards the higher risk side because that is where the highest returns lie. :)

    cheers
    nilesh

    This comment was originally posted on http://www.prateekdayal.net/blog)“>Prateek Dayal

  14. sudarshan
    May 30 09 at 1:49 am

    I chanced upon your blog and found it very informative. The event blogs are striking enough to have a feel of the event, so, I would like to have a little chit-chat on your blogging interests. And even we are coming up with an event on startups on June 6th in Bangalore. So, can I have your contact details? Looking forward to hear from you.

    This comment was originally posted on http://www.prateekdayal.net/blog)“>Prateek Dayal

  15. Rohit K
    May 31 09 at 3:24 pm

    Hi Prateek,

    I just discovered your blog today, and it has fired my imagination. I have been wanting to become an entrepreneur myself, but my only source of income was a corporate coding job, and that left me with no time or energy for starting my own business.

    This consulting idea intrigues me. I thought consulting was a viable career option only in the U.S. etc., and that in India there was not much work for freelance consultants. In your experience, is it otherwise? What kind of clients can one expect to work for – other startups, or mom-and-pop businesses?

    Thanks for any guidance you can offer, and thanks for the great posts on your blog.

    Rohit

    This comment was originally posted on http://www.prateekdayal.net/blog)“>Prateek Dayal

  16. Prateek Dayal
    June 1 09 at 4:09 am

    Hi Rohit

    I am glad my blog could fire your imagination :)

    There is a good market for consultants in India currently. There are a few companies that outsource projects to you. You just need to know the right people (which you would, once you are here)

    I feel that there is a certainly a great market for Ruby on Rails (probably because its not as crowded as Java/PHP). However I am sure that if you are good at a technology, you will find work in it. Typically outsourced work pays more than local work but it sometimes varies

    This comment was originally posted on http://www.prateekdayal.net/blog)“>Prateek Dayal

  17. Stephanie Elizabeth
    June 7 09 at 3:01 am

    That was an excellent post with some great information. We published some information on this topic too. You can see it here.

    http://bizconnectionsnow.com/blog/business-funding/business-funding-where-to-start/

    This comment was originally posted on http://www.prateekdayal.net/blog)“>Prateek Dayal

  18. Random Guy
    June 7 09 at 3:43 am

    Did you guys try the traditional VC route. It might be a easier given that you are getting good traction. I can see the hockey stick growth in one of your earlier posts.

    This comment was originally posted on http://www.prateekdayal.net/blog)“>Prateek Dayal

  19. Praveen
    June 7 09 at 6:53 am

    Hi Prateek,

    I am about to start my own and our projections are quite similar. Can you tell us what hosting providers you used and how good were they?

    Thanks,

    Praveen.

  20. Prateek Dayal
    June 9 09 at 10:45 am

    @Random Guy: We did talk to a couple of investors post Proto but we no longer feel that its the best way to build a webstartup in India. Will write more on it soon

    @Praveen: I will write a post on it next. Expect it sometime this week

  21. Biju
    June 12 09 at 6:29 am

    Great that you shared the “real life” info from the rest of the budding CEO’s :

    Thanks :)

  23. Prateek Dayal
    June 27 09 at 6:52 am

    @Abhinav: Thanks for the comment. However, I don’t see a connection between what I have written about and the post you have linked to. May be you can explain?

  24. Abs
    August 22 09 at 3:17 pm

    Hey Prateek,

    Nice blog….U r really inspirin ….When do you plan to have your breakeven…
    Will it be easy for you to transfer from VPS tp Dedicated…

    Tc,
    Abs

  25. Prateek Dayal
    August 23 09 at 2:08 am

    Hi Abs,

    Thanks for your comment. We plan to be profitable in the next 6 months or lesser. We are already on a dedicated server and we are already operationally breakeven (which we means we can pay our server rent + home-office rent with what we make).

  26. Abs
    August 30 09 at 7:42 am

    Hey Prateek…

    Thanks a lot for ur reply. Yesterday I spent whole time watching ur videos…U at Proto…n then U n Nithya on YouTube….really feels great there are people like you …who are really transparent about ur startup..What is ur take on VC funding…Could you send me any article or explain me how does VC valuation takes places and how much stake is given to VC post funding…I am also planning to start a firm but I don’y have a single penny in my pocket all I have is an idea :)

    All the very best to both of you

    Abs

  27. Prateek Dayal
    September 10 09 at 11:37 am

    Hi Abs,

    I don’t have much idea about VC funding, beyond the information available online .. We personally are not going for it so we have not researched much. I am sure you can go a quick google search and find stuff

    Best of luck
    Prateek

  28. Abs
    September 12 09 at 1:56 am

    Thanks a lot Prateek,,,What are the options other than VC funding…What are the -ves for VC funding..

    Regards

  29. Ashish
    October 25 09 at 2:51 am

    Hi Prateek,

    How are you ? How long did you take to design and develop this website.

    Thanks.

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