Low-Burn in a Lean Startup – living to fight another day

In his 2005 essay How to Start a Startup, Paul Graham wrote (emphasis mine):

You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible. Most startups that fail do it because they fail at one of these. A startup that does all three will probably succeed.

The term “Lean Startup” has gained in popularity since it was first coined by Eric Ries in his September 2008 article. Summarising his manifesto, a lean startup is one that is defined by low burn rate coupled with the broad application of “lean thinking” methodologies – alternatively referred to as agile – not just within the development organisation, but also by applying “ferocious customer-centric iteration”.

Within Lean Startups, Ries expects to see the adoption of commodity technologies, specifically open source platforms, such as the LAMP stack, at their core. As someone who’s predominantly worked with Microsoft technologies during the last ten years, I obviously want to leverage that skill-set in my new business – does that mean I’m Anti-Lean? Not according to Dave Concannon who argues otherwise, suggesting that vendor-controlled platforms (such as Microsoft’s) are equally viable as long as you’ve got great developers producing the solution working with great customers who understand the problem.

As much has been written about the application of lean thinking; I thought it would be interesting to provide some suggestions on how to maintain low burn during the early days of a new business. I hope this will be generally useful to “new starters”, and maybe more so to those this side of the pond.

Only Pay for What You Have To

Blindingly obvious, I know, but it’s worth knowing what’s out there in terms of free or nearly free stuff. Here are a number of examples that I’ve found useful:

• Microsoft’s BizSpark programme – provides free access to qualifying organisations, for three years, to a broad range of Microsoft software, including development tools
• Atlassian’s Confluence enterprise wiki – costs $10 (for up to ten users)
• TargetProcess agile project management tool – first five users are free
• Xpenser – free and rather good expenses tracking application
• Google Apps Standard Edition is free – Premier Edition is only $50/year
• WordPress blogging platform (my personal preference) – available free with most hosting accounts, or at wordpress.com (although unless you’re Seth Godin, you want to avoid a blog URL like mycompany.bloggingplatform.com, so you may have to pay a little. Whilst on the subject, here’s a useful pointer on WordPress hosting.)
• TripIt – invaluable (and free) if you do a lot of business travel
• Some great tools from 37 Signals – most have a free option although it’s a lot less prominent than it used to be (- there seems to be a bit of trend away from fremium models more recently)

In terms of hardware, I have long been a believer in having the best kit on developers’ desks, but unless you’re building high-powered mathematical or graphical applications, it probably doesn’t make sense to buy brand new equipment – I have been surprised by what you can find on eBay, often with at least two years warranty, at 60% of the original cost. As it happens, I was lucky to be starting when a (not so lucky) friend of mine’s business went into receivership – I got a load of kit for very little money.

Only Operate What You Have To

In an ideal world, I would have precisely zero (0) servers at the office. However, being a Microsoft shop means running Team Foundation Server (remember, via BizSpark, it’s free), and it currently doesn’t make sense to try running TFS remotely as network connectivity at my premises (like much of the UK) is a little slow and unreliable. (I note that some firms in the US are starting to offer this as a service – see for example, TeamDevCentral, but I think high quality comms is a prerequisite). This translates into a minimum of two servers (thankfully, although it’s not recommended, everything in the Visual Studio Team System 2010 setup can run on one Windows 2008 R2 server) – one domain controller and backup domain controller. A third server runs Microsoft Home Server (yes, at the office) backing up all the desktops every night, making it quick and easy to recover from a disk crash. (If you are happy using Subversion, you can forgo all this – see for example, here and here.)

For everything else, hosted services are the way to go. Again as a long time Outlook/Exchange user, I looked for someone to provide a hosted Exchange service. Sadly Microsoft’s offering, Microsoft Online Services, has a minimum user requirement of 5 users, but there are plenty of other vendors offering hosted Exchange for single user up. (Here in the UK, Simply Mail Solutions seems to be about the best value I’ve found.)

These days, unless you are generating crazy amounts of data, using daily tapes makes little sense; on-line backup services are so much more convenient (although of course, backing up is only half the story). I’ve settled on an Attix5-based service from Techgate partner Zenzero which seems to work pretty well, but I’m sure there are plenty of others out there. Backups are obviously not a place to skimp.

Staffing

Without doubt, the single largest expense in any software start-up is salaries. I used to believe that the only way to grow development capacity was by adding bodies, which in my first start-up translated into us taking on developers as fast as our income would sustain. Although it wasn’t obvious at the time, this mindset is plainly flawed; apart from ever reducing productivity as foretold by Fred Brooks, it meant we were regularly on the brink of running out of money.

I now see that part of the trick to growing development capacity is becoming more efficient – ensuring that developers know exactly what needs to be done (i.e., minimising waste) and ensuring the environment is conducive for maximum output (i.e., minimising interruptions and distractions). The point I’m trying to make from a “low burn” perspective is to avoid the knee-jerk tendency to add developers in order to achieve more output, at least until all other avenues have been explored.

The Other Side of the Coin

Whilst it’s important to keep unnecessary expenditure to a minimum, it’s all the more important to invest in yourself and your team, whether that means developing your technical skills through training events, or improving your business know-how through attending relevant conferences. On this front, my favourite event is the Business of Software Conference, where you get to hear the experiences of world-class speakers, many of which have built substantial businesses. Although, all told, this is several thousand pounds of expenditure plus the time out of the business, I think it is worth every penny; if you’re thinking of starting a software business, I can wholeheartedly recommend it.

If you have your own tips for maintain a low-burn environment, I’d be delighted to hear them. Please leave a comment and let me know.