Finance - Cash management - Budgeting - Costs
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Today on MBA Mondays we are going to talk about another form of costs; Sunk Costs. Sunk Costs are time and money (and other resources) you have already spent on a project, investment, or some other effort. They have been sunk into the effort and most likely you cannot get them back. The important thing about sunk costs is when it comes time to make a decision about the project or investment, you should NOT factor in the sunk costs in that decision. You should treat them as gone already and make the decision based on what is in front of you in terms of costs and opportunities. Let's make this a bit more tangible.
A VC: Sunk Costs
A VC: Opportunity Costs
We are going to turn our attention on MBA Mondays to some costs that are important to recognize in business. First up is Opportunity Cost. Opportunity Cost is the cost of not being able to do something because you are doing something else. These costs don’t end up on your income statement but they are expensive, particularly in a small business where you have very few resources. Let’s use an example. Assume you have three software engineers on your team and you commit to building a new product that ties all three of them up completely for six months.
By – July 29, 2010 Cash is the lifeblood of a startup. So whenever someone pitches me a business idea, the first thing I look at is their cash flow. Specifically, I look at their fixed costs, which add up to the amount of money being spent each month whether or not a sale is made . If your costs are high and you’ve overestimated your ability to generate revenue, your company will bleed to death.
Rookie Mistake #1: Incurring Fixed Costs
My apologies... this is a long piece (~2500 words). Not for the faint of heart. If you want the short story, read the abstract below & 3 core assertions, then cut to the conclusions at the bottom. Abstract : VC funds are getting smaller (good), & angel investors are growing (also good), but both need to get smarter & innovate. Startup costs have come down dramatically in the last 5-10 years, and online distribution via Search , Social , Mobile platforms (aka Google, Facebook, Apple) have become mainstream consumer marketing channels. Meanwhile acquisitions are up, but deal sizes are down as mature companies buy startup companies ever earlier in their development cycle.
MoneyBall for Startups: Invest BEFORE Product/Market Fit, Double-Down AFTER. - Master of 500 Hats
July 30, 2010 It has become commonplace to claim that the cost of starting a company has declined by an order of magnitude; just this morning Dave McClure took this claim as the starting point for his dazzling essay, Moneyball for Startups . I think the claim is partially true, but overstated. And I wish we had data, not rhetoric, to settle the dispute. The costs that are supposed to have declined radically are usually for hardware and sales.
It’s Still Expensive to Build a Great Product | Redfin Corporate Blog
Sequoia Capital on startups and the economic downturn
Sequoia Capital recently made a presentation to its portfolio companies about how to try to survive an economic downturn. Here’s the presentation
Much has been written and said about the current economic downturn and the resulting lessons on how to run high-technology companies. Quite famously, Sequoia Capital, the premier venture capital firm in Silicon Valley, held a mandatory all-CEO meeting in fall 2008 during which it advised them to “Cut spending. Cut fat. Preserve capital.” ( You can see the presentation here. ) The presentation catalyzed a movement.
The Case for the Fat Start-Up | Ben Horowitz | Voices | AllThingsD
Ben Horowitz has a post called The Case For The Fat Startup on the All Things D blog. I don't agree with Ben's take on this issue but I have enormous respect for Ben and his partner Marc Andreessen. They have started and built multiple successful businesses and all I do is write checks. So take everything I have to say with that in mind. I'd also like to say that my comments are only related to software-based businesses.
A VC: Being Fat Is Not Healthy
The Revenge of the Fat Guy : pmarca
But it wasn’t at all obvious that was going to be our destination while we were getting there. We actually achieved product market fit in a number of smaller contrast, Apple's iPhone 3GS shipped June 2009 and shipped 1M units in 3 days. At what point is it obvious to the original iPod team that they've achieved product market fit?
Finance - Cash management - Budgeting - Costs - Hosting