This post is part of a series about the evolution of tech founder from the early beginning, to becoming CTO and manager in a startup. The entire series: From tech founder to CTO/Manager
I’ll try to depict my learnings, but also things that other founders experienced in their journey. I’m looking for the stories of other founders so don’t hesitate to contact me!
Starting a company starts from zero: zero product, zero customers, and zero money. This article, will try to tackle the last one and give guidelines on how to start with a personal financial situation comfortable enough to help start the business.
In a tech company, the highest expense is on people. It’s 100% normal as we now have great free and inexpensive tools to develop the company. In Marketing: Social media and emails are free, in product development: open source and free Saas are everywhere. The only thing you’ll pay at first will be the team. So, the first person on which you have to cut costs is you, the founding team! Your company won’t pay you a salary before a long time.
Ths zero income situation can be stressful, hence the importance to plan and be ready.
I created a “Financial launch planner” when I started CovEvent, it’s downloadable at the end of this article.
Save for a reserve
One day, you’ll have no personal revenues. To survive in this situation, you must save money to cover your daily costs. You’ll have the comfort of being 100% focus on your company without doing consulting or having a side job. Because time is your worst enemy as founder, you have to be a little under pressure and be focussed on your project.
Your cash reserve (directly accessible on a bank account) should be sufficient to handle at least 6 months of no working income. It’ll depend on your company and your sales process, but as a rule of thumb, 6 months is sufficient and not too much either.
The easiest way to start this reserve is to get a job. A lot of young founders want to start directly after graduation (I was in this situation too). At that time, however, you start spending money on rent, food etc. and have no reserve.
The best advice I received at that time, and I give to all student founders. Is to work at least 6 months to be capable of surviving without revenue.
The “Employee trap”
I started as Software Engineer at a tech company (working on cryptography and video compression), and worked there 9 months. I made the deal with myself to quit my job before 10 months to not fall in the “Employee trap”.
Being an employee is super comfy (In Belgium at least): You’re paid every month (even more), you have paid leaves, insurances,… and your role is well defined and limited. It’s thus easy to fall in the “Employee trap” and forget your entrepreneurship endeavor. It’s up to you to decide which one is better for you.
Negotiate for a short job period
Hiring someone for such a short period can be tricky for a manager. I was clear with my employer that I had different projects on the side, and directly asked if it was an issue. Be careful that some working contracts don’t allow you to work on something else on the side. Be sure to have a signed letter that allow you to work on your projects in your spare time.
Be 100% transparent and focussed on your job while at work. During the interviews, I already explained my projects and my long term goals (5 years/10 years). My manager was aware of all my plans, which helped me in the decision to join the company.
I had the chance to be managed by the founder of the company. He understood that I was more of an entrepreneur than an employee. When I announced my resignation, everything was clear for him and I was comfortable leaving the company.
It’s really important to keep good relations with people and transparency is key for that.
Reduce your costs
It’s always the same: It’s easier to cut costs than making more revenue. When you have no revenue, try to reduce your costs at the very livable minimum. Personally, my only real needs were food, rent and going out with friends (don’t become a hermit!).
The sooner you want to start your company, the less financial risks you take. For example, if you have children, a mortgage or other financial obligations, you are more exposed. Take those into account when planning your launch. Taking a risk for yourself is already something, but exposing other people is something completely different.
Normally, your rent (or loan) will be the main expense. But it’s also one that can be reduced: Go to a shared flat instead of a flat, maybe go live with your parents, or just go to a smaller/less expensive place.
I was finishing my studies so I stayed at my parent’s house for 6 months (before finding a good flat-sharing in Brussels). During this period, my costs where around 200€/month.
Example of split: My situation
My very minimal costs of living were (in Brussels in 2016):
- Rent: 450€/month in a flat-sharing in Brussels.
- Food: 100€/month
- Social: 100€/month
- Various: 100€/month (Transport, phone, clothes…)
Plan and predict
The most important part is to be able to predict and be sure of the state of your reserve. I always loved Spreadsheets to make projections and try to anticipate things. So I created a small Google Spreadsheet, you can download here: Zero Income Gap Spreadsheet (Free)
It takes your incomes and expenses as input, and will compute your runway (the duration you can live without a job). After leaving your job, for each month, input your expenses, it will adjust the runway and you’ll see if you’re on the right path, to adjust it otherwise.
This post is part of a series about the journey from tech founder to CTO/Manager. Don’t hesitate to give feedback and follow me on Twitter to not miss the next posts!