The Cost of Bootstrapping Your App: The Figures Behind DropSend (part two) RyanC 13 Mar 2006

40 comments Latest by Stephanie

Just to recap …

This is part two of a two-part series, based on a talk I recently did at The Future of Web Apps in London (an 800 person event we put together, aimed at encouraging European developers to get rockin’). In part one, I covered:

  1. Making sure your app is financially viable
  2. The figures of what we actually spent on DropSend
  3. How to build your team on a budget
    and
  4. How to scale on a budget

You can listen to the MP3 and grab the notes, but for those of you who don’t have time to listen to the 45 minute talk, here’s part two.

How to keep it cheap

When you’ve got a small budget, you need to watch every penny. Here are a few tips that saved us a load of cash:

  1. No stationary. For some crazy reason I thought it would be really cool to have DropSend business cards and letterhead. There goes £1000. Dumb.
  2. Don’t get new machines. You don’t really need a new laptop, no matter how bad your G3 iBook seems
  3. No luxuries - It may be tempting to splurge some cash on nice dinners for clients or business class seats, but forget about it. It’s not necessary and it’s not going to help you afford the web app any time soon
  4. Cut your features. The less complex your app is, the quicker you can build it. Not to mention that it’ll make it easier to use
  5. Check yourself before you spend £25. Anything above this, ask yourself if it’s really necessary
  6. Barter your services. Does one of your suppliers need a website? Great! Offer to trade them a website for their services.
  7. Use IM or Skype instead of the phone
  8. Do as much as you can yourself before your outsource. For DropSend, we did: wire framing, marketing, testing, bookkeeping and copy writing
  9. Get friends to help with usability testing. For DropSend, we offered some buddies free beer and pizza to help out, which was a hell of a lot cheaper than formal user testing (which I’d avoid anyway).
  10. Shop around for everything. Our first hosting quote was £12,000 per month!

Pessimism has it’s place

I want to encourage you as much as possible, but being occasionally pessimistic is important. If you plan for the worst in your cash flow predictions, and you can still stay in business, you’re good to go. I would plan for the following two things to happen:

  1. You’ll go 10% over budget
  2. You’ll go 3 months over schedule

Just plan on these things and make sure your cash flow can survive it.

Holy crap! Lawyers are expensive

One thing that really caught us off guard was how much it costs to take care of the legal stuff. Sure, we need a couple contracts written up, but how much could it be? "A lot", was the answer. Here’s the bare minimum you’ll need for your app:

  1. Terms of Service: £1000
  2. Contracts for freelancers: £800
  3. Privacy policy: £15 (You can find these online)

A great way to cut down on these costs is to barter with your lawyer. Offer them a free site in return for a Terms of Service document. Also, take them up on that 1-hour free consultation!

No matter how much you’re tempted, don’t just copy and paste your competitor’s legal documents. If something goes wrong, you could jeopardize your whole company.

Cheap software is your friend

A fabulous way to cut costs is to use cheap (or free) software to help you manage the project. We use the following:

  1. Project management: Basecamp
  2. Bug tracker: Trac (you can subscribe to an RSS feed of commits - super cool)
  3. Meetings: Skype and AIM
  4. Version control: Subversion
  5. LAMP (Linux, Apache, MySQL and PHP)

Cheap hardware is your pal

In order to cut costs and speed things up, we bought a cheap £200 Linux box from the local computer store and used it as our dev box. Once the co-lo was setup, we moved it into there, but starting out on a cheap dev box an easy way to get things moving.

How to not spend money on marketing

I’d highly recommend not spending any money on marketing initially. Once your app is profitable, feel free to plow some money into traditional advertising. In the meantime though, take advantage of:

  1. Blogs
  2. Word of mouth
  3. Making your app viral in some respect (but be careful not to annoy people)
  4. Write articles or books

What about venture capital?

You need a very good reason to seek venture capital in today’s market. However, there are certain reasons why it might be a good idea. Here’s a couple scenarios where you might need VC:

  1. You need to expand very quickly and you can’t afford to
  2. You need very expensive hardware
  3. You need to have a physical presence in more than one place
  4. You need important connections to arrange partnerships that a VC firm can help you with

However, if you don’t have to do one of those two things, why would you give away 25 - 50% of your company?

If you don’t remember anything I just said …

Remember these:

  1. Don’t spend money unless you absolutely have to
  2. Bring down the costs by bartering
  3. Cut your features so you can build quickly
  4. Be realistic, if not slightly pessimistic, about your cash flow
  5. Plan for scalability but don’t obsess

Thanks …

Thank you for listening. I hope we’ve saved you some of the pain and suffering we went through when we built DropSend. On a side note, I’ve just finished 37signals new book Getting Real, and it’s got some more excellent ideas on how to build on a budget. Good luck!

As always, feel free to agree or disagree below.

40 comments so far (Jump to latest)

David James Nicol 13 Mar 06

“No stationary. For some crazy reason I thought it would be really cool to have DropSend business cards and letterhead. There goes £1000. Dumb. “

I totally agree with you about letterheads being a waste, but I think that business cards can be quite handy.

Dave Peele 13 Mar 06

Great article!! These tips will really help as we get cranking on our new app development!! Thanks!

I agree with David above that letterhead can be a waste, but business cards rock.

Josh Teague 13 Mar 06

Thanks for this series and MP3 set. They were just fantastic. Congratulations on your work!

Gannon Hall 13 Mar 06

This exemplifies the biggest (and perhaps the saving) difference between the bubble of the late ’90s and today’s “web2.0” frenzy: fiscal conservatism. Nice one.

Gstfssn 13 Mar 06

“Check yourself before you spend £25. Anything above this, ask yourself if itís really necessary”

As the founder of IKEA (Ingvar Kamprad) once said: “It is not large incomes that makes you rich. It is small costs.” And sure he has made some money… :)

Bruno 13 Mar 06

This is a great article, the tips above are as accurate as it get’s IMO.

Thx.

John S. Rhodes 13 Mar 06

If you are starting a business then stationary is extremely important. If you’re smart you’ll use it again and again when you make contact with others in meatspace. I can’t tell you the number of times that someone responded (quickly!) to a handwritten note on my (expensive) stationary. For consultants, this is crucial.

Now, if you are simply pounding code and working things behind the scenes, then stationary can be a waste of code. But remember, nice stationary can impress people. More importantly, it can get folks to respond which ultimately save you time and money. Emails are easier to ignore than a nice, handwritten note on your jazzy stationary.

I also totally agree with the comments on usability. I’ve done my fair share of usability consulting and I can tell you, save your money until *after* you’ve at least done some level of testing with friends and family. Once again, it’ll save you money and time. However, there are times to dig with more formal testing. Sometimes you really need to test 5-10 people, perhaps walking through several scenarios to get some key data. Just be smart about it.

The “Cheap software is your friend” section reminds me of “The tools we use to run and build 37signals

John S. Rhodes 13 Mar 06

“waste of code” oops! Should be waste of money.

Ryan Carson 13 Mar 06

Thanks for the kind comments everyone. Glad the article is helpful.

John, regarding your comment on stationary: it may be nice, but it’s not necessary *when you’re on a budget*. If you can afford it, by all means, get some great stationary designed.

James Cruden 13 Mar 06

Once again, thank you for your effort. Very interesting reading.

John Topley 13 Mar 06

Ryan,

You say to do as much as you can before you outsource, so why did you spend nearly thirteen grand on development? Was it simply that you don’t have the skills to do it in-house, or did you want to save time too?

Ryan Carson 13 Mar 06

John - Carson Systems has just two full time employees, myself and my wife. I could’ve hacked DropSend together, but it would’ve been ugly. It’s very important that your web app is built well, so we decided to go that direction.

John Topley 13 Mar 06

Thanks Ryan. I didn’t realise that there are just two of you, so I guess all that professionalism’s paying off! ;-)

pwb 13 Mar 06

It’ll be interesting to see if offshore legal services become more prominent. Elance already lists quite a few providers.

Sandeep Sood 13 Mar 06

Ryan,

Thanks so much for the audio version of this - we have spent time breaking down our projected costs based on the general framework you outline here - very helpful.

You mention outsourcing to India in your talk. I think that most bootstrapping, design-savvy web dev companies discount the value of outsourcing to India. Outsourcing to India requires thorough preparation and a discipline that is very much in line with the “design first” approach that companies like 37 signals follow.

However, outsourcing to India is simply different than outsourcing to Indiana. It requires developing some basic knowledge about the location you are outsourcing to (an unfortunate example of lack of preparation from your talk itself), smart recruiting (would you just find somebody on the web if you were outsourcing here in the US?), and a disciplined approach.

If the right steps are taken, the cost savings is simply unparalleled (as is often the dev work).

Deepak 13 Mar 06

Thanks for the great writeup’s. There are some great ideas in there. They may not work for everyone, but I think the majority are fairly transferable across businesses.

Peter Akkies 13 Mar 06

“No luxuries - It may be tempting to splurge some cash on nice dinners for clients or business class seats, but forget about it.”

Business class seats is a personal choice, but dinners for clients can be a nice way to build up relationship and get word of mouth referrals. While one shouldn’t over-do it, your wording is a little too blunt IMO.

achim 13 Mar 06

Ryan,
good insights written down here! Congrats! Is it possible to publish a edited localized version on my German blog while massively linking to 37s, DropSend and Getting real?

Please give me a note or send a PM at aschlemmer AT gmail.com, thanks.

Jeff Hartman 13 Mar 06

Once again, good stuff. I failed on the “Don’t get new machines” point. Although to my credit I didn’t have *any* machine when I left my job.

…and not to nitpick y’all, but it’s stationery, not stationary.

Shawn Park 13 Mar 06

Ryan,

Thanks so much for sharing the slides with us. I listed to the MP3 last week and I agree with everything you had to say.

Shawn

Brandon Eley 13 Mar 06

I think spending £1000 on business cards and letterhead is the problem. Design some letterhead and print it on your laser or color inkjet if you need it. Business cards (even nice, color cards) are available for well under $100USD for 1000 cards. Mine are 4/4 color cards and I get 2500 for under $100 shipped to my door. Business cards are a NECCESSITY if you do any face to face business (even with vendors) or even if you get out in public to push your product/service.

I completely agree about cutting costs though. After spending a fortune starting our first business, and blowing most of the money on needless things like office chairs and industrial shelving to sit in our expensive warehouse, I can tell you none of it’s important until the money actually starts rolling in. Then worry about buying all the stuff you need… when you really know WHAT you need.

Stevo 13 Mar 06

Hey Ryan, good advice!

Did you develop a spreadsheet to help you predict the future, experiment with different strategies, etc.? Would you share it (scrub the numbers, obviously).

Here’s an example: You say don’t buy expensive stationary if you’re on a budget, you’re not going to need it. Someone else says fancy stationary can help you close deals. But both of these assertions are just guessing.

What if you could say that buying the stationary would push out your break even point by 3 months? Or that the stationary should be so good that it increases your closing performance by 40%?

My advice here would be: Don’t guess, work it out.


Anyway, I can work out a break even point. What I’m looking for is advice on creating the 37signals of spreadsheets — the no bullshit, just the minimum, that me and my partners can use to get a handle on a future venture.

My accountant can do the taxes. I’ll create a seperate set of lies for the biz plan readers. I’m looking for illuminating truth!


Anyone any tips?

Wille Faler 13 Mar 06

Any tips on how to scale up? That would be an interesting read.

Scaling from a small number of users to lots can be challenging: going from a simple Linux-server hosted by others to a more complex setup with several servers, backups etc.
How would you manage that step once an app starts growing but truckloads of cash is not available?

JF 13 Mar 06

How would you manage that step once an app starts growing but truckloads of cash is not available?

If the app starts going, but you don’t have the revenues to expand, then something else isn’t right. Growth in your user base should equate to growth in your revenue base. If it’s not you need to rethink your model.

Michal Jaskolski 13 Mar 06

I believe that it is better to outsource everything which is not directly connected with product development. Usually your time is your main asset, so you should spend it on changing your ideas into UI and code and making your product unique, rather than bookkeeping. “Free website in exchange” barter deals could be quite time-consuming too, so avoid them if you can.

martin 13 Mar 06

I was surprised by the stationery comment until you mentioned £1,000! How do you spend £1,000 on stationery?

David Vaassen 13 Mar 06

1000 pounds for stationery ? - boy you limeys pay a lot.
In New Zealand we cn get 500 businesss cards in full colour using a decent weight stock for NZ$79 (about 25 quid)!

Ryan Carson 13 Mar 06

Achim - I’m sure it’s OK for you to translate the post into German, as long as you make it very clear that it’s from Signal Vs. Noise

Regarding all the questions/comments about business cards and stationery - I can’t tell you what’s important to your business. If you have a lot of face to face meetings, of course business cards are necessary. That’s not what I’m talking about though. I’m specifically addressing building web apps on a budget. Please keep that in mind.

Geoff B. 13 Mar 06

Yeah, it was a little strange when Ryan mentioned Bangladesh when he talked about outsourcing to India. My guess is that he meant Bangalore…

I certainly enjoyed listening to the talk and reading the slides, and I greatly appreciate Ryan’s willingness to share the details of his venture, so I’m not trying to harp on this. But I am curious.

Ryan - if you read this far in the comments, would you mind clearing this one up for us (ie,. was it bangalore or bangladesh where you outsourced at first)?

Ryan Carson 13 Mar 06

Bangalore - sorry everyone.

Sandeep Sood 13 Mar 06

no worries on bangalore…sucks when our gw moments get caught on tape!

Nathan 13 Mar 06

Actually, Ryan, you mean to say “No Stationery” in no. 1.

AndyToo 14 Mar 06

On the ‘how do you spend £1000 on stationery?’ question - I believe that this would include the cost of a designer to come up with some nice business cards and letterhead, and then get it printed on good paper/card.

Of course, if you think you can do a decent job yourself (an believe me, most people can’t) then by all means, save a grand and knock it out on your $50 inket… see which one gives the better impression… :)

RyanB 14 Mar 06

First of all, thanks a lot for publishing this information, Ryan. It’s very helpful.

I listened to the MP3 of your presentation, and noticed that you didn’t end up having time to go back to the outsourcing issues you had. Could you tell us some more of the problems you encountered? I know you mentioned that some of it had to do with your lack of experience with managing long-distance projects, but I’m curious to find out what the other issues were. Thanks again.

Peter 14 Mar 06

Wise men create “cash floats” whenever possible. Don’t over-look them.

Pavel Filippov 14 Mar 06

I really envy to British designers — they know how to handle themselves… But next time try to outsource design too — you can order stationary design outside of England, receive it by e-mail of ftp in .pdf format and then print in local printing house. For example, you can order in Russia business card and logo for as little as $500. And its not some kind of cheap student-looking job, but professional graphic design.

OrsonKart 18 Mar 06

“How to spend £1000 on stationery”:

Easy….

1. Designer
2. Business cards x2
3. Letter headed paper (2 variations)
4. Comp slip
5. Printed folder

In our case, the printed folder (x500) cost as much as all the other items added together.

Manny 22 Mar 06

Ryan hi,

I listened to your mp3 presentation the other day and found it very useful and informative. You mentioned the importance of finding a good developer. Any guidance you can provide me with on this would be greatly appreciated.

Manchester, UK

Marco Antonio - Brazil 26 Mar 06

Ryan, thanks for your great post.
“Cut your features. The less complex your app is, the quicker you can build it. Not to mention that itíll make it easier to use”.
Wait a moment. Easier to use? Less complex? Using Ajax, Javascript, CSS, server-side validation, and so on make my application much much more friendly, easier to use BUT many more complex. What do you think about?

Stephanie 06 Jul 06

There is a great book called The Money Machine by Dwayne Esterline that shows how to drastically cut costs. His book explains how to show employees the importance of saving money, and how to cut costs without cutting back on workers. It really made me understand exactly how much money gets wasted, and made a huge difference in my spending habits. They sell it on Amazon.com, it’s great for managers or business owners to read, or anyone who wants to learn more about saving money in their business.

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