If I had a million dollars – I’d be rich!  (Would I???)

What may seem like a very long time ago for many of the people reading this, there was a song by the Barenaked Ladies – If I had a million dollars – in which they sing about all the things they would’ve done if they had $1,000,000.

During the song they bring up a few nonsensical points such as:

• If I Had $1,000,000 I’d buy your love
• If I Had $1,000,000 I’d buy you John Merrick’s remains (All them crazy elephant bones)
• If I Had $1,000,000 I’d buy you a green dress (but not a real green dress, that’s cruel)
• If I Had $1,000,000 I’d buy you a monkey (haven’t you always wanted a monkey?)

However they do manage to bring up some points that would make sense:

• If I Had $1,000,000 I’d buy you a house (I would buy you a house)
• If I Had $1,000,000 I’d buy you furniture for your house
• If I Had $1,000,000 I’d buy you some art (a Picasso or a Garfunkel)

Granted that (in #Toronto) these days, $1,000,000 would barely buy you a house and would definitely not leave you enough to buy any sort of meaningful art, but the premise is really great.

In the world of business, specifically that of a #startup company, $1,000,000 can go a long way.

Rationing out the million dollars

Let’s start off by discussing what that million dollars could mean to a burgeoning startup with a bit of a typical financial forecast of that money.Those numbers are fictitious and some businesses obviously do better (and faster) than others, while still too many other squander the opportunity for whatever reason – even if they are well funded. A lot of “making it” really is all about being at the right place at the right time, it’s not always about the best idea, and perseverance, lots and lots of perseverance.

As you can see below, a normal (and possibly typical) burn (with actual sales) could take you beyond 18 months of burn – which is typically what most people would believe is a good amount of cash in the coffers.

The build out

Let’s pretend that this business is a tech business, since I tend to work in that realm quite often and can speak to the numbers best.

The very early stages

When just starting out, you have the option to make it fully self-funded sole proprietorship or to partner with others. There are benefits to both, however going at it alone can be challenging as you will undoubtedly be burning the candle at both ends. Here you are in charge of absolutely everything and it’s unlikely that you’ll be good at everything, so you’re best to employ people who fit well into your blind-spots or find a good partner / co-founder. Further, if you are serious about starting your own venture, something that will grow to a (hopefully) substantial size, it’s really time to think about quitting your normal job and go back to student life living (that is, reduce ALL your expenses down to the very bare minimum).

As a quick aside, I’ve read a ton of advice telling you NOT to quit your job, or to put undue stress on your family.  I fully disagree with this – you need to dive in, make sure you have the gall to take the necessary steps and move on.  Trying to keep a 9-5 (or nowadays 8-6) and then get home, work on your business and spend time with family is a surefire way to burn out and not get anything done.  Leave that job if you’re truly serious about starting something for yourself – plan for it, save, be ready and make sure your family is on board – but dive into the deep end, there is no room for dipping your toe in.

Leave that job if you’re truly serious about starting something for yourself…

The burn rate when you’re in this stage is not typically formidable, however you typically need to have capital for the following things:

• development environment (if you are using services and/or cloud)
• website
• domain name(s)
• hosting cost

If you are bootstrapping I would recommend doing all of these things on your own (or with your partner) and not outsourcing or offshoring them.  This will save you money and runway so that you have some money left over in a few months to spend on marketing and advertising (and client/customer acquisition).

Hiring some functions out

Hopefully you have found a bit of market fit now and can start thinking of hiring out some of the functions that you and your founding team is not very good at.  That could very possibly be technical writing, finances, digital marketing, #machine learning, etc…  This part is very dependent on the skills you guys have, but might look something like below:

I personally like to fill these type of organizational charts early and try to figure out when and how certain parts of my work will be replaced by another person so that I can plan when and how to hire them.  This will, of course, also push your company’s financial situation close to a Valley of Death point where you’re in serious trouble and could end up folding in mere days.

Persevering beyond this is where good companies start to be made. This is the point at which most people go from beyond the position of begging their friends and families for money and get noticed by #Angel groups.

Conclusion

All of this is a bit of a story about how that first one million dollars might have been spent.  You have likely had to cut back on absolutely everything, haven’t had real meat (or organic veggies if you’re vegan) in months and are probably dying for a beer.  Now cue the windfall that somehow bequeathed upon you one million dollars in the bank prior to starting this.  What would it look like at that point?

Money truly won’t solve all your problems (and will often hide many of the troubles you might have – as I’ve seen first-hand at many startups), however at the start, with 1-2 decent (but young)  hires at approximately $90,000/year, you’re looking at $15,000/month spent on salary.  Add in a few sales & marketing staff and we’re getting to about $30,000/month.  Pretending that you’ll all be working remote, you have no office cost, but you definitely have cost of development and hosting required – so let’s assume about $5,000/month for the first 6 months and $10,000/month thereafter.

This now puts you at $450,000 for that first year – without having counted in all kinds of incidentals.  Hopefully that was enough money to get you to a marketable product that lends itself to signing a few paying clients so that you have more than $550,000 left at the end of that year – money you can then use strategically to get the word out, recruit harder, pay a little more for a superstar hire or finally pay yourself.

There you have it – $1,000,000 spent in approximately 18 months without much of a staff and no office.  That would have gotten me (many times over) to a point where I would have launched many companies in the past.