startup-costs, website, funding, investment, web-developmentI have a decent startup idea on web and for smartphones, but no experience on entrepreneurship except what I read online. So, I had been looking up for the choices people made to build successful websites. I realize almost all great websites have a significant funding in exchange for a great deal of shares which proved to be extremely valuable today. Therefore I can tell funding is a must, only that I don’t really know what I would need it for (or what facebook needed it for, for example). I really thought about it, and still have no idea.
Only answers I could think of were:
I am a developer myself and I think I can set up everything technical in a year. I am already hosting online for free to test, but I plan to set up my own servers to meet increasing demand. This hardware should cost something significant for me, but nothing I can’t save in a year. I am willing to meet this expense myself because if I really need to pay hardware to host my website it means I am already successful. And for marketing costs, I have friends who are extremely active worldwide. We already came up with some interesting ideas which would cost very little but may reach to many of my target audience. Another thing is if my hosting expenses increase with the number of users or if I need technical help to add new features quickly, initial earnings from advertisements could be spent to those expenses along with my own small contributions.
Given the situation I am in, I still think there must be a reason all successful websites needed investment. Am I underestimating any of those steps, being unrealistic about development, hosting or marketing? Or am I completely ignoring another significant cost? (for example I never truly looked into legal costs if there is any)
I would greatly appreciate if someone with experience/knowledge about this topic can give me their opinion on funding as I really do not want to go blindly into this project.
Here are some thoughts on this.
You don’t need money to start a company short of paying for your operational expenses, etc. On a web-based business, costs of web servers have come down a lot in recent years so you can probably afford these for the short term. When I built my first web business (long gone with the first internet bust), server fees ran me about $1k a month as compared to $30 now.
Marketing and Advertising, as mentioned before are areas you’ll need to spend on, but as you mentioned you’re going to rely on word of mouth, etc to grow the business.
Legal fees and the other incidental costs are relatively cheap if you need them for minor things.
So, no, you don’t really need investment money to start a web-based business, especially if you’re going to stay small and run this as a lifestyle business (i.e. earning enough to live on, but no goals to be the next Twitter).
That being said, if you do have grand visions of being the next Facebook (Twitter is a world of hurt, business wise, so don’t dream on that front), then you will need investment money.
Imagine you have the classic hockey stick growth curve (i.e. slow growth for awhile and then suddenly everyone wants to use your service), you’ll suddenly find yourself needing more and more server capacity and not the kind you get from GoDaddy. If you don’t have money, you’ll find yourself really hurting to handle that exponential growth.
Investment money is also good to allow your company to move very fast against any potential competitors and to hire highly skilled developers to make the moves happen faster and better.
I recommend listening to Episode 2 of Masters of Scale by Reid Hoffman https://mastersofscale.com where he talks about money (a transcript is also online if you don’t want to listen).
However, even if after reading this, you decide that you do want to get investment money, unless Mark Zuckerberg introduces you to Sequoia Capital himself (or someone else of high standing), there’s a slim chance that you’ll get the opportunity to pitch your idea (imagine how many pitches these folks get).
So, in order to get the attention of a VC, build your business to be moderately successful, not not so successful you’ll bankrupt yourself and then start talking to investors (or wait until they call you).
Also, you can’t learn entrepreneurship online or by taking classes. You may learn the framework for it, but the only way to learn how to do a startup is to do a startup.
So, just build it, since you already seem to have market fit.
Programming and marketing are the two costs that I focus on most. However, one cost I don’t think you mentioned was paying yourself, and paying your employees / contractors. If everyone’s working for free – or for a percentage of the income from your site & app, which will probably be small at first – then you can ignore this.
If you are referring to eCommerce startups, the bulk of the cost is in development, advertising, content building, optimization, and depending upon whether you are planning on drop-shipping or stocking, building a reasonable amount inventory.
Website startups are some of the lowest cost investment requirements if you don’t mind waiting for a return on your investment. However, if you want to see more immediate top line growth, you should consider creating a budget that invests in marketing, advertising, product listing and text ads, remarketing, and ad-words campaigns.
Pro-Tip: If you have the capital to do so, hire an in-house specialist(s) who can truly understand your product and its competitive landscape to manage your advertising, content, and/or merchandising. If you hire a contractor or contract company to maintain these, make sure you hire one that uses performance-based pricing. Performance-based pricing is one of the best ways to ensure an effective ROI. Often times, companies will over-promise and under-deliver because they are left unchecked and unmanaged.
There are a lot of things to consider in developing your business online, but getting the right people (or outsourced companies) on the bus, and investing on the proper areas can mean the difference between your success or failure.
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