How much is enough?
Lately, money’s been on everyone’s mind, so I thought I’d talk about having “enough” money.
What is enough? That’s a hard question to answer. To most, enough is at the far end of a rainbow; indefinite in amount and far away in time. It’s odd though, that something so important remains undefined. We like to know exact details of everything else in life, but why not the definite amount of enough? I blame it on Vegas.
I love slots. So much that I’ll reserve hours with the five cent slots on every trip. My biggest problem is winning. Within ten minutes of my first spin, I win. I don’t win the max, but I win enough to walk away profitable. Do I stop? No. Should I stop? Maybe. I don’t stop because I could win more. It says right above me that I could win more. So I keep spinning until I’m broke. I’m not really broke, just $40 bucks down.
So for a second, let’s pretend it’s not me in Vegas, but you. You’re a tech savy, guru, living in downtown Portland. You recently sold your Prius in lieu of Zipcars. A little hungover from your Vegas vacation, you hop on a plane. But on this plane ride home you scribble some notes on a napkin, pocketing it as your disembark. Late in the night, you can’t sleep because images of the napkin notations are zipping right and left. So you get up. The napkin quickly grows to a legal pad. Excited, you take some additional vacation days. You talk the legal pad into the beginnings of a business and eventually a prototype. You call your mom. She tells you to write a business plan. If you are picturing this dramatization, imagine me holding a large red stop sign. Before you do anything else, I have a question. How much money do you want to make (in a year)? And why did you call your mom?
I ask every start-up this same question. Some say millions while others say thousands. But from my experience, this is a deal breaker. To most seasoned entrepreneurs, paying yourself is the last thing on your mind. But you have to at some point, and when you do, how much? After spending months crafting a business plan, have you actually thought through how much your satisfaction costs.
Understanding what’s “enough” is important because it will determine your company’s culture and direction. When I left IBM and started Intrigo, I was determined to make the same salary within a year. This meant that once my moderate salary was met, I had enough and the business could grow with the rest. Don’t misunderstand that I don’t like earning bonuses, but when it comes to start-ups, those first few years are all you get. And if you have money to grow, grow.
To illustrate this differently, I’ll use a client example. We have a client who wanted to make $12 million in their first launching year. And for two years, that revenue point has dictated a large scale, expensive marketing plan with high costs. But for those past two years, they have never received enough investment money to pay the required marketing costs. When we recently re-evaluated and decided to instead market to a single city, costs dramatically decreased, the campaign moved forward, and people started adopting. While the original revenue point does not directly convert to salary, their high expectations of “enough” crippled and cost a lot of money.
My point is: before you do anything else, figure out how much is enough. Then build your business.
On a side note…
While Intrigo is a open source, web application house, we tend to help clients with far more than custom PHP. This is by accident. We don’t ever intent to rework business plans, but without challenging our clients, our applications wouldn’t be successful. Applications and business models should intimately interact, but as application development inevitably exposes business edge cases, business models must change. I spend most of my time planning for and moderating these exposures. Even though Intrigo is highly technical, this blog tends to address issues of a less technical nature. I mean to communicate the common difficulties that more technical start-ups encounter.
