What being cheap means for a startup

STARTUPS
PRODUCT DEVELOPMENT
DEV SHOPS

We’ve all heard that time is money, but for a startup, money is time. Why spending less will make or break you.

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October 22nd, 2023
5 min read

Once Mark Cuban sold the internet radio startup that he co-founded to Yahoo! for $5.7 billion, he made what he considers his smartest purchase ever: a plane. “It is obviously brutally expensive, but time is the one asset we simply don’t own. It saves me hours and hours”.* As Cuban points out in the video, it was the biggest online purchase ever made.

Time is money, but as Paul Graham, co-founder of the elite startup accelerator Y Combinator, pointed out, money is also time.

Many years ago Graham wrote down 13 principles about how a startup should think and act. Number 8 on his list: spend little.


I can't emphasize enough how important it is for a startup to be cheap. Most startups fail before they make something people want, and the most common form of failure is running out of money. So being cheap is (almost) interchangeable with iterating rapidly. But it's more than that. A culture of cheapness keeps companies young in something like the way exercise keeps people young.

- Paul Graham in his essay "Startups in 13 Sentences"


Owning a jet unlocked Cuban’s time constraints, giving him more control over his availability. Despite spending $40 million, he didn’t equate it to buying a yacht or luxury car. He saw it as an investment in efficiency.

But Graham has a different take on the relationship between time and money for a startup. Rather than buying things that can help you save time, he explains that spending less money can grant your startup more time. Experienced founders know that a startup’s survival is a continuous cycle of sprints from one fundraising round to the next until there is steady revenue. If money runs out, you’re forced to scale back and inevitably shut down. As much as we discuss being first to market or outpacing the competition, the real race is most often against the funding clock. Don’t run out of money.

So how do you stretch your startup’s money further? How can you be cheap without sacrificing your ability to test ideas, find product market fit, and continue acquiring customers?

The answer depends on the stage of the startup. In a separate article, Graham wrote about doing things that don’t scale. When trying to determine whether a certain feature set is worthwhile or a particular product idea solves a real problem, create just enough that allows you to test your hypothesis and then go talk to people. Find out if you’re solving a real problem for real people and whether your solution solves it better than existing solutions.

Bootstrap wherever you can and postpone investing in tech until you really need to. Focus on prototypes and capitalize on every last ounce of learning opportunity and validation. Even if you’re technical, focusing early on too much on the tech and too little on the customer’s problem is a losing strategy. For example, don’t build an elaborate backend for enrolling new users if you can get away with manually logging the first few hundred people. In addition to spending money prematurely, even if the idea is worthwhile, that backend system is likely to be replaced or changed dramatically due to architecture, tech stack, or functionality. Despite Hollywood’s inspiring rags to riches startup stories, you can’t simply sit in the basement and code in a vacuum. Once you’ve validated your idea, gotten to know your early adopters, and done a bunch of things that don’t scale, it will be time to build out your product.

When you reach the point that you need to actually create custom software, it’s expensive. Experienced, knowledgeable technical talent is expensive. Trying to be cheap by hiring junior devs or blindly outsourcing to a dev shop on the other side of the world can be a recipe for disaster. Once it’s time to get technical in order to build the product, how can you apply Graham’s philosophy to an area that is so fundamentally costly?

Graham’s emphasis on the importance of spending little gets to the heart of why we started HolaDev. If startups could save money on the steep costs of software development while still getting quality code, it would increase their odds of surviving. It would give startups more of a financial runway while also giving them back the bandwidth to concentrate on business development, user acquisition, and investor relationships. The key we realized was being clear about our value prop being affordable custom software development and sticking to it.

Focusing on delivering value via our expertise means working with startups at the right stage of their journey. When we think that a low-fi prototype built with no-code tools will suffice, we encourage founders to DIY or find a freelancer. Don’t rush to development. The name of the game is survival and reducing your burn rate means living to see another day. Before you start mapping out custom solutions, do a gut check to see if you’ve addressed the major questions of whether you’re on the right track.


*https://www.mensjournal.com/health-fitness/how-mark-cuban-came-rule-mavs-shark-tank-and-world-large

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By Jeremy Stryer
Co-Founder