How to save money running your startup Video Lecture | How to Start-Up your own Company (Video Course) - Entrepreneurship

hey everybody its Jason Calacanis and
this is our startup basics series now in
the startup basics series which is
brought to you by our good friends at
Wilson since any good rich in Rosati
WS gr as they're referred to here in the
valley or just Wilson Sonsini great
great law firm what we did with this
series that they have under it is we
take the most common questions that they
get as attorneys that I get as an
entrepreneur and as a angel investor and
we answer them and we do a ton of
research Emmy award-winning producer
Jackie Jacob the team here Andrew
everybody researches them and we find
the information across all the different
people who might have blogged about it
before and we correlate it with my own
personal experience having run startups
and invested in them for over 25 years
my gosh I'm getting old and I started
young and I've got a lot of battle scars
to prove it so here's just an overall
way to look at why it's important to
save money when running your company
right so this is a this video is how to
save money running your startup just how
to be efficient how to save money
running your startup basically doing
more with less now why is this important
well as entrepreneurs we are given
resources by investors typically or
clients we'll get into that and we have
to deploy them in a competitive world so
if you look at something like the NBA
there's a salary cap there's a certain
amount of money and all the teams have a
certain amount of parity because there's
a cap well in the real world there is no
salary cap anybody can spend any amount
of money on anything and people
typically do so when you have a
competitive space let's take over vs.
lyft I'm an investor in uber uber has
raced so much more money than lift lift
has raised so much morning more money
than sidecar that there is no salary cap
in that space there are tons of
investors who will pile on to the
biggest winner uber they'll some
investors will put money into the second
winner let's say left and you know very
few people will go to the third or
fourth person so you are in a race that
is unfair and it is brutal and you need
resources so you have
to prove as an entrepreneur that you
know how to deploy resources
intelligently so that people with the
resources ie venture capitalist angel
investors rich individuals can feel
confident that giving you money will be
the money they give you will be well
spent right they don't want to give it
to some idiot who then loses their money
and if you can be more accurate with
your bullet you're gonna kill more
zombies right so in the zombie
apocalypse like you want to be a sniper
right you want to just pick them off and
not waste any bullets same thing here
right everything comes back to the
zombie apocalypse so here is a couple of
tips if you're starting your company and
the first one seems obvious and things
have changed radically for startups we
used to go get office space and we'd
rent an office and we would get a lease
and we'd sign a lease and we get a real
estate broker never do that this is a
horrible thing to do many businesses in
web 1.0 went out of business because
they had too much office space and they
couldn't sublet it it was a huge
disaster people were spending more money
on their real estate after they laid
people off after the 1.0 explosion of a
dot-coms they were spending more on
their rent than their staff because they
laid so many people often they had 50
people in spaces that could hold 500
never sign a lease in the first year of
your business you should simply rent a
desk and when you go rent a desk find a
friend or a place that does desk rentals
like I work at a we work you know I've
got a the launch festival launch company
does three million dollars online
revenue we work out of we work because
we only spend $6,500 a month it's a
controlled cost we're only spending
seventy five thousand dollars a year on
our office space we would have to excuse
me at least for three years
and we'd have to get more space than we
need and then be totally inefficient
just rent desks for five hundred bucks
apiece or three hundred bucks apiece now
when you do get to the point and this is
tip number two we do afford an office
you want to get cheap office space
unless your business is making money
hand over fist your you know Dropbox or
Survey Monkey or uber and you just got a
cash printing machine you don't deserve
class a office space you deserve to be
in the BBS part of town full-stop
you don't deserve clean floors you don't
deserve elevators that work
you need to act like a startup you need
to walk up three flights of stairs and
if you get a big fancy office space it
sets the tone completely wrong for your
startup everybody thinks oh my god we
could have this great office space oh
now we can all start spending money like
idiots get a cheap office space and when
you do get that cheap office space let
me give you another piece of advice
cheap desks expensive chairs cheap desks
expensive chairs your desks at Amazon
were made out of doors
go get plywood doors put plywood doors
under like you know those little horses
at Home Depot
call it a day your desk does not matter
you chair does so go buy some used
ariane soar sail tears by yves behar
those things probably cost you 300 bucks
used or something that's worth it cuz
people got to sit in your chair all day
but hey listen if you're starting out
just give folding chairs getting you
know cheap chairs it doesn't matter you
have to save money now you want to defer
salaries in the early days so anyway you
can save money you're well within your
right to say to somebody who is $100,000
your program or hey we just got our
angel round for a quarter million
dollars we have to go that's product can
I pay you 50 percent of your salary now
and defer the other 50% if we get
another round of funding and we're gonna
give you this amount of stock
compensation in lieu of that that's a
perfectly reasonable thing to do and you
know what if people believe in the
mission and they understand your startup
they may want to help you out and you
may get 4 out of 5 people will help you
out and you give them a little more
equity and then one person says no I
need cash I got a family I got I got to
pay for my mortgage I got to pay for my
kids private school so sometimes that
happens but you don't know till you ask
and I've seen many founding teams live
off of ramen salaries in you know
outside of the elite parts of town or
living off savings and that's okay and
that's a good idea if you can swing it
now it's not a good idea to lose top
level talent because you're obsessed
about this and you want everybody to
live like a monk that's not reasonable
but you can in the early days get people
to take more stock than cash and the
conversation like this hey you asked for
a hundred thousand dollars and 25 basis
points we would like to offer you 50
thousand and a full basis point one full
point rather not a vase of one full
point so double the equity but half the
salary or
we want to split the middle we want to
give you 75 in cash and we want to give
you 40 basis points something you can
and if we get the next round of funding
we'll bump you up 10k or something you
know you can come up with all those
offers and let them make the case and
what you'll find is if people people are
not going to be offended by that they're
gonna think you're savvy as a leader so
don't be afraid to negotiate on salary
and you can say listen we are not Google
or Apple but in Google or Apple you're
gonna be working on an ad network or
this little feature of the settings page
on your iPhone or this little you know
aspect of you know invading people's
privacy with Facebook Ads or something
and you're not gonna feel great about
yourself the end of the day and you're
gonna work with the team where you're
like the thousand spoke and the
thousandth wheel well how about you're
one of the four wheels and we're gonna
get there together hey that's pretty
cool right so people will regularly take
less money to be involved in a mission
based company to be in early and get the
lottery ticket a stock option so don't
be afraid to negotiate that now here's
one of my big tips if you don't have
money and you're doing an enterprise
company especially you should be going
to your clients and saying hey I want to
build this thing called Yammer or this
thing called Dropbox for enterprise or
box for enterprise even better is there
a way that if we build the solution for
you you would pay for a year in advance
and we'll give you half price and we'll
put a person on site to help you
implement it I got a lot of my
businesses off the ground by getting
coins to pay in advance and if you have
that conversation if there's ten people
who want your product and USM I'm
guaranteeing you three or four of them
will pay you in advance and then all you
have to do is go to the three or four
and say hey you're our focus and the
other six who want to pay after the fact
or they want to pay yearly or quarterly
or something they don't want to pay
yearly they want to pay every month
that's fine you could have them pay next
month and this is all if you're
struggling as an entrepreneur now if you
have tons of money you can take this
advice and tweak it a little bit based
on how big your bankroll is maybe you
want to buy the fancy desks I don't
advise them now with a law firm
most people don't know that's a little
secret if you've got a great idea and
you've got some great advisors in your
company and I'll teach how to get
advisors in a second you can go to a
great law firm and say listen I got
Jason Calacanis advising the comeback I
Peter Rojas from Engadget would you mind
deferring our ten thousand dollars of
legal fees and when we hit five hundred
thousand dollars in equity
10,000 legal fees 500,000 and money
raised and when we hit a million dollars
or two million dollars we'll pay you
25,000 and negotiate flat Ruiz flat fees
with all your attorneys for that stuff a
lot of great law firms will look at it
and if you seem credible and if you've
got some good advisors they're gonna go
for it now how do you get great advisors
you go find people who maybe aren't rich
enough to put money in to your company
as an angel investor but you say hey you
have massive credibility you are a great
VP o product here there would you join
our advisory board we'll give you 25
basis points for four years of service
one year cliff and then monthly after
that if you don't know about how equity
gets vested you can look that up and
getting a couple of advisers on build
your credibility and what you want to do
is put an get like two advisors and then
get advisors that are slightly better
than those two and then get advisors who
are slightly better than those for
basically getting a little bit better as
you go write more meaningful people
involved in your company now outsourcing
HR and accounting should seem obvious at
this day and age but some people still
hire an HR person and hire an accounting
person early on the life of the company
that stuff should never be done you want
to use one of the great services out
there that does outsource and there's
plenty of peos and outsource accounting
firms use them and negotiate with your
vendors when they give you a price get
three quotes I get three quotes on
everything and this is my process get
three quotes make sure they're apples to
apples right so you don't get into the
stupid negotiation say like hey you know
vendor please give us an apples to
apples please make the quote with these
line items not just one item do your
accounting give me like how much per
hour how much per hour overtime how much
do the taxes then go back to all of them
say hey listen I liked you best you can
say that to all three of my own and the
deals yours if we can do 50% deferred
fees in the first year or if you're
willing to do it for 30% off something
like that you would be surprised how
many vendors out there already
profitable and they want to help you
grow your business because you might
grow into the next Dropbox or uber that
they have is client so negotiate and
then that's my next tip you want to
negotiate with your vendors every six
months to twelve months I have so many
people work for me who are
Jason why you're such a jerk making us
renegotiate with our cloud hosting
niggas renegotiate with this company and
I'm like well because I want to put that
money to work in other places now you
don't want to have your whole life being
renegotiating the cost of pencils or
something like that
but you do want to negotiate hard on
things that are reoccurring cost let's
say anything you spend over a thousand
dollars a year on I would say that's
open for negotiation and certainly
anything about five or ten thousand
dollars a year you might have 20 of
those $10,000 things a year you want to
negotiate all of those and you want to
negotiate every year and never never
sign a contract that's more than
month-to-month or if it's a two-year
contract there needs to be a 30-day
mutual out or a 60-day mutual out what
is a six-day day mutual out that means
that either party can cancel with 60
days notice this way you're not locked
in I have so many people who get locked
into a contract for email services for
24 months and they're not using a mail
service that is you know month-to-month
you want to have that flexibility
because the flexibility is not just to
cancel but to renegotiate so you can say
hey I had a two-year I have a two-year
contract with you it's got a 60-day out
you can file the 60-day out and then
call them I would say yeah we're
cancelling you know well likelihood
because we found two other vendors at
this cost but we'll keep going if you
can match it but if not we wanted to get
that cancellation in now because we want
to be done by October 1st or whatever it
is it's very powerful negotiation it's a
very powerful negotiation technique now
things like travel people phones
equipment depending on the region in the
u.s. you are there's different
expectations I do not pay for
everybody's mobile phones at my
companies because it leads to people not
looking at the costs what I just say is
we'll pay for salespeople $25 of your
$100 a month bill because that's about
how much time you're gonna use it for
your sales jump or maybe $35 or
something bad this way they're not just
submitting their bill and not looking at
it because that some companies people
don't have to look at their bill and
they're not responsible over a certain
amount so then they go travel to Europe
and they run up a thousand dollars and
they put it on the company and they get
lazy about expenses you want to set the
perdy
reasonably at the early stages of your
company prettyman's how much you give
people in they travel and you just sit
like hey we're gonna pay for two or
three meals we're gonna give you $35 a
day $50 a day we it's not a fancy-pants
company right now and then as time goes
on you can increase it and the booking
of travel should always go through a
central person in your organization who
is cheap as hell because I cannot tell
you how many times in my history I have
seen people buy tickets or rent cars
because they're trying to score up
points for their to their vacation to ha
Hawaii two years from now and like I use
Delta oh I use market this is the
biggest scam ever done in corporate
America that we give a kickback in
points to employees for money being
spent by companies for them to make
private travel that's a kickback that's
illegal
but somehow well these companies call
them points when it's really a cash
kickback that would be like taking the
company credit card and going and buying
lunch at a restaurant saying I'm gonna
buy lunch here charge me an extra $20
and we'll split it you give me ten you
keep ten that's what those programs are
and I don't mean to seem like you know
like a hardcore you know hard-ass like I
don't want anybody to get points or
miles or some like that if people
incidentally got miles I wouldn't mind
it but these programs are very
significant they add up and they're
baked into the price of these for
start-up companies it's unacceptable
that people go and goose their spending
in order to make their stuff go up you
know they're they're free points go up
what I do in my companies all of the
points off of all the credit cards that
are issued go to one account that
account is where we book our travel from
first so that we can conserve cash
because we're all here for the bigger
prize which is the equity value of the
company and so you have to have these
conversations and people and sometimes
they're uncomfortable but I feel that if
you set a tone of frugality in your
company it will carry on and when
somebody sees somebody do something
stupid like I'm a single person and I'm
gonna take an SUV instead of taking an
uberx you know for a third of the price
everybody in the company should just
admonish that person what are you doing
we don't waste money and you know I
learned this from a guy named Scott
Kearney who was running about calm back
in the day the guy was worth tens of
millions to hundreds of millions of
dollars I got on a flight and I had
gotten upgraded to business class and he
came walking by me he's a big man and he
sat in coach and I said hey how you
doing and whatever and I said hey you're
in coach he said I fly coach every time
I'm like really
Scott karna fly's coach he's absolutely
you know as I'm a last minute traveler
that seat up there where you're and we
would cost me $2,000 I got the seat for
300 I'm not wasting the company's man
and I went put that money into the
product that's the kind of attitude you
want to have is that Scott Kern had
cheap bastard like we're putting that
money into the company
no offense got Curnutt we want to put
that money into the company into the
product at all costs save money at all
costs put the money into the product
this is the key this is how I make a lot
of my decisions as an entrepreneur I
look at people and I say is this a
person who's distracted and wants to go
to Dubai on a speaking gig because they
got invited to TEDx Dubai and they think
in some delusional way going to TEDx
Dubai he's gonna move the needle for
their enterprise software company in
Silicon Valley those kind of people are
not the people you want to be in
business with are investing they're not
focused stay focused on the product put
all the money into the product and you
won't yes you want to treat your
employees well I hope this doesn't sound
like I'm being cheap to all employees
what I'm saying is there is a sense of
entitlement amongst Silicon Valley
employees and when that gets applied to
angel invested in companies it ruins
them you have to start early with being
frugal and disciplined frugal and
discipline when I see people stroll into
my office at 10 o'clock and they leave
at 5 I stop them and I say 10 o'clock 5
o'clock 7 hours you're getting paid for
8 hours a day you took an hour and a
half lunch is that reasonable to your
other team members you know like a
listen if the person's crushing it and
they're working three hours well that's
fine and you want to be punching the
clock but there is an attitude and
there's a sense of entitlement in the
industry and you could have a group of
people being very frugal in company and
then one person like that comes in who
is constantly leaving at 3 o'clock
constantly strolling in at 10:30
constantly spending extra money doesn't
seem to care about saving money asks you
to pay for their
you know home computer their home
internet connection is like I've had
people put on their expenses like you
know home computers and their home
internet connection I'm like you you're
telling me at home you would not have
had a home computer in a home internet
connection come on come on you want to
make sure those people are not in your
company it's a tell those people who are
frivolous with the company's cash those
are people you need to get out early or
you need to sit them down and say hey I
know you're used to working at Sony or
Google or Microsoft or whatever big
company where you spend up to the budget
the budget that we spend at the startup
is as little as possible to succeed in
that endeavor whatever it is so we're
trying to close a client and we can do
it over GoToMeeting we're gonna do it
over GoToMeeting we're not gonna fly to
New York to close it if we need to fly
to New York we're going to and in that
case we're taking the cheapest flights
and if we can fly in and out on the same
day and skip a hotel room which I've
done many times when I was broke then
we're doing that effing hotels are $500
600 all as Manhattan we're taking an air
B&B in Brooklyn I regularly ask people
who work for me that if they want to go
to other cities in there doing business
that's great do you have somebody you
could stay with happens all the time
people have friends they can stay with
great save the company the money
buy yourself a little something extra at
dinner you always want to do that and as
an employee you should be vocal about
saving the company money and being
frugal you don't want to be penny wise
pound foolish so there's a piece of
software you can get for 50 bucks a
month that saves you more than five
hours or three hours of your time and
you're getting paid 20 bucks an hour or
30 bucks an hour or 40 bucks an hour
yeah you want to get that software and
you want to be making those calculations
as you go I make those calculations as I
go people who work for me will tell you
many times I'll say hey a $12 an hour
intern or somebody working from home to
get that done in five hours what is the
software cost
well the sabra cost 500 a month okay
five times twelve is $65 a month
$440 difference why would we pay $500 a
month for that you know stupid PR
database when we could just look up
people's emails on Twitter why are we
gonna spend money on focus or whatever
this nonsense is somebody came to we
gotta get a focus account I'm like a
focus account for $500,000 a month for
what purpose so you can just type I need
these journalists and get their emails I
supposed to just hustling and going
getting them for free what's wrong with
you people but that's what happened to
me those big company people come land in
a small company they just bring all
those spending habits with them and you
gotta stop that and you got to be frugal
and when you see that as my said as an
entrepreneur as an angel investor oh my
god I one of the questions I ask people
is how much money did it take you to get
to this point in your product I've seen
people show me stuff that looks like a
million bucks and they're like yeah that
took us six months and three people and
seventy-five thousand dollars but we
actually have fifty thousand of the left
I'm like what happened they're like oh
well we all worked for free and you know
we paid a designer 25 grand to make the
app like wow you guys care widget the
75k for him Oh from our parents Wow
this is the person I want to be in
business with they took their parents
money they took deferred salaries they
got a lot done with a little bit and now
they're ready to rock and roll those
people who have to spend tons of money
I've seen it so many times there's a
time to spend a ton of money and not be
frugal like you're in a race like uber
is with lyft like you can be capital
inefficient at times when your Google
versus Yahoo or Amazon versus Viacom you
can be slightly capital efficient and
inefficient those businesses Facebook
can buy a ton of companies and waste
money have a whole division startup shut
down because they have a money printing
machine
uber Google they all have money printing
machines they can make big
billion-dollar mistakes they can make
five hundred million dollars makes 50
million mistakes five million dollar
mistakes five hundred thousand dollar
mistakes when you're in a start-up you
can't make a fifty thousand dollar
mistake it could be the end of your life
be frugal and thank you to our friends
at Wilson Sonsini for supporting
start-up basics that's all I got for you
today how to save money how to be cheap
bastard
that's one of my advice today be cheap
save money put the money back into your
product everything on the plate you know
people go to a restaurant and it's like
in the bad part of town and there's the
wallpapers old and the tables are you
know not sitting properly and then the
person the chef brings out a plate and
you eat that flank steak that's been
marinated perfectly you're like this is
the most amazing restaurant ever it's
like no it's not the restaurant is
disgusting it's on a the worst Street
ever it's the food that's delicious it's
what's on the plate that matter
the cleat is your product it's what
people see when they pick up the phone
and they press your icon and they open
that out that's what matters in life
that moment every dollar has to be
associated with that moment and if it's
not if it's associated with the
wallpaper its associated with how fancy
your Destin's you know the people who
are downloading your goddamn app they
don't see the desk you're sitting in
they don't care they don't care that
you're not in a big fancy pants office
they don't care you fly first-class or
coach or do a goto meeting instead of
traveling
well they care about is what's on that
tiny screen what's on the plate matters
in the restaurant what's on the phone
matters in startups that's it we'll see
you next time on startup basics thanks
again to my friends at WS gr Wilson says
Seanie bye-bye