# Finances

Why Do We Spend So Much Money Pre-Revenue?

startup

I recently wrote a blog post titled Why We Spent $172,298 and Only Made $45 and got a ton of messages, responses and comments, such as this one below:

why we spend so much money

Many of my close friends, acquaintances and blog subscribers do not understand how we can spend so much money in a company that does not earn a penny.

I can see their point; there is no guarantee that Finic will earn anything at all in the future. If it doesn’t earn a penny in the future, it would mean that I had thrown away a large amount of money, effort and time.

For the same money I’m using to build Finic, I could have built a house for every close relative, and still have a good chunk of cash left over afterwards. I could also move my family to Hawaii and live there without any worries for the rest of my life on this money. I could do many things with this amount of money.

Many people seem to think I’m stupid for spending this much money on the activities I outlined in this blog post. I wanted to explain my reasoning behind the spending.

I’ll start by digressing a bit to set the stage. I promise I won’t ramble. :)

 

When I started my first internet startup (which I wrote about in a TNW article), I did not know what I wanted to build, yet I was trying to raise $300,000 of outside investment. That was a stupid endeavor. When I was able to secure $600,000 of investment in a form of a loan from friends, that was even more stupid.

In my mind, these actions were stupid because I raised money from my friends, with no proven business model and no idea how I was going to pay my loans back.

You might have read about the popular app Secret shutting down recently. These guys raised $35,000,000 in outside investment–– the founders ended up cashing out at $3M each and investors got the money that was left. The company has shut down, and now could be called a failure since it was not able to do what it originally set out to do.

You probably heard the story about fab.com, which raised $363M of outside investment and was sold not too long ago for $15M.

These stories are becoming more and more common: founders raise tens of millions of dollars as they overvalue their startups all without proving their business models. They end up closing their shop soon after.

Why am I rambling about this? I promised not to ramble. What I am trying to say is that compared to other startups we are not spending that much money here at Finic. We also never took any outside investment, we are spending a total of $2.4M of our personal money earned by another company that we own.

 

It is not my first time building a successful business on the internet, where I would build an MVP with a co-founder on $20K of my money, try to get $300K from an angel, try to get customers and try to raise a few million from a VC. Have you heard of an experienced entrepreneur who built his eighth startup this way? I don’t think so.

I made a TON of mistakes that gave me experience and in turn have helped me go through these first steps of building Finic much faster. Of course time = money. To speed things up and do more in a shorter timeframe, I need to have the right people on my team who don’t come cheap.

Also, it’s not like we’re building a silly iPhone app; we are building a business that operates both offline and online. What does “offline” mean? It means that highest quality manufacturing is not cheap. It means that perfecting our entire process from printing wall art to delivery and installation is also not cheap.

Everything costs money.

Starting a business such as ours with just $100K and a few people is just not realistic.

why we spend so much money

I had an option to raise a Series A round of funding from VCs and angels when we started Finic; we’re talking about $1M-$2M in outside investment instead of using my money. I decided against it for the following reasons:

1. I do not want to take money from investors who won’t give much besides money.
2. I still do not want to take outside investment until we prove our business model.
3. Spending most of my professional career building startups, I am confident that using personal money to build a startup and prove a business model is the way to go.

 

We currently have 21 people in our company. It might seem like that’s a lot of people, but let’s dig into who we have working on our team and what they do day-to-day.

Here is our team at Finic and their functions:

1 – CTO
1 – CFO
1 – CEO
1 – Designer
1 – Project Manager
3 – Back-end developers
1 – Front-end developer
1 – iOS developer
1 – Assistant
1 – Marketing Director
1 – Marketing Assistant
2 – Videographers
1 – Copywriter
1 – Support
1 – Office Manager

Manufacturing:
1 – Manufacturing Officer
1 – Printing
1 – Assembling

group meeting

Every person has their responsibility, and they usually don’t have enough time to finish all of their tasks.

A while back when I was looking for funding for one of my startups, I met with an entrepreneur in Los Angeles, CA. He told me that in order to build the technology behind Facebook all you need is three months, three developers and most importantly, the right way of approaching the problem.

Many people who look at successful companies and do not fully understand how manufacturing and internet businesses work may think that it is possible to build Finic much faster and for much less money. This reasoning is deceiving.

If you look at all successful companies with a proven business model that earn a good revenue you can find one simple commonality: these companies have been around for more than a year. All of them started out a few or more years ago and made tons of mistakes and pivots before they became who they are today.

However, all of them were not transparent like our team here at Finic. That is why nobody knows the mistakes they made, how much money they spent, how many people worked for them and what each employee was doing day-to-day. At Finic, I want to be 100% transparent about everything so that everyone can learn from us, and we can hold ourselves accountable.

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