Top Ways Startups Waste Money

Summary

In this insightful discussion, startup founders are advised on common financial pitfalls to avoid, especially before achieving product-market fit. The conversation covers the temptation of hiring high-salary talent from big companies, the inefficiency of relying on contractors, the risks of aggressive marketing spending, the value of personal networking over PR agencies, and the pitfalls of expensive legal customization. The speakers share their experiences and emphasize the importance of spending wisely and creatively, suggesting that founders should 'earn the right' to spend by first trying to solve problems themselves or through low-cost methods.

Takeaways

• 📈 Early-stage founders often waste money on hiring, especially when trying to hire 'big name' talent from large companies like Google, which can be costly and not always effective in a startup environment.
• 💼 Hiring contractors can seem like a cost-effective solution, but it often leads to a lack of commitment and alignment with the company's goals, resulting in inefficiencies.
• 🔍 Founders sometimes spend excessively on marketing, especially on advertising platforms like Facebook and Google, without fully understanding the long-term value and potential waste.
• 🎤 Investing in PR agencies is often a misstep for startups, as they may not provide the expected value and can be a costly way to learn about firing vendors.
• 👥 Advisors can be beneficial, but paid advisors rarely provide the game-changing insights that justify their cost in equity or money.
• 📑 Legal fees can spiral if not managed carefully; customizing standard legal documents like employment agreements can be an unnecessary expense.
• 💡 The importance of getting estimates and specifications for legal work beforehand to avoid unexpected high costs.
• 🏢 Startups should aim to earn the right to spend money by first trying to solve problems in a low-cost or no-cost manner, such as doing tasks themselves.
• 🛑 Pre-product market fit, it's crucial for startups to stay disciplined and avoid unnecessary spending on things like advertising, hiring, and PR.
• 💰 Post-product market fit is the time to invest in growth areas, but even then, spending should be strategic and thoughtful to avoid waste.
• 🔑 Founders should learn to push back on requests for equity from advisors and consider asking them to invest in the company instead, aligning their incentives.

Q & A

Why do early-stage founders often hire PR agencies despite the advice against it?

Early-stage founders may hire PR agencies because they lack connections in the media industry and are tempted by the promise of getting press coverage through agencies that claim to have insider connections.

What is the common mistake startups make when hiring from big companies like Google?

A common mistake is hiring someone who is used to a high salary and benefits package from a big company, expecting them to deliver the same productivity at a startup without the same resources and support system.

What is 'sebastianism' as mentioned in the script, and how does it relate to startup hiring?

Sebastianism is a Portuguese myth about a lost king who will return to solve all the country's problems. In startups, it refers to the belief in a 'mythical' perfect hire from big companies who will magically solve all the company's issues.

Why is hiring contractors sometimes a waste of money for startups?

Hiring contractors can be wasteful because they often lack the same incentives and commitment to the company's success, leading to inefficiencies and higher costs in the long run compared to hiring full-time employees.

What is the potential issue with spending too much on advertising early in a startup's life?

Spending too much on advertising early on can be problematic because it may not provide valuable learning experiences for the startup and can lead to excessive spending without a clear return on investment.

Why do startups sometimes waste money on events and sponsorships?

Startups may waste money on events and sponsorships because they can be tempted by the allure of brand visibility and the success stories of other companies, without considering whether these strategies are appropriate for their current stage.

What is the main reason startups should avoid spending money on PR agencies according to the script?

The main reason is that PR agencies may not provide the value expected for the cost, and startups are often better off building direct relationships with the media themselves.

Why did the speaker pay an advisor in equity and how did it turn out for him?

The speaker paid an advisor in equity because he thought the advisor would bring significant value to his startup. It turned out to be a good move because the equity became worth a lot of money.

What is the speaker's advice on dealing with legal fees for startups?

The speaker advises startups to get clear quotes and specifications for legal work before it is done, to negotiate payment plans for large bills, and to avoid unnecessary customization that can drive up costs.

What is the 'Lie' that founders tell themselves about hiring that the script discusses?

The 'Lie' is the belief that hiring someone from a big company will automatically lead to success, without considering the cost and the fit of that person within the startup's environment.

What is the speaker's view on when startups should start spending money on various areas like hiring and marketing?

The speaker believes that startups should start spending money on these areas once they have achieved product-market fit and have a clear understanding of their product and customer base.

What advice does the speaker give about advisors and equity in startups?

The speaker advises that founders should be cautious about giving away equity to advisors. Instead, they should consider asking advisors to invest in the company, thereby aligning their interests with the startup's success.