Hungry start-ups on a drastic diet

Hungry start-ups on a drastic diet

By Noah Buhayar

Published: January 20 2009 22:48 | Last updated: January 20 2009 22:48

Every day scours the web for the best deals on roughly $1bn (€750,000, ??670,000) worth of concert and sports tickets from secondary sellers.

But if you ask Dan Haubert, the site’s co-founder, about his financial concerns he will list amounts of the two-, three- or four-figure variety.

There is rent: $1,350 a month for a three-bedroom apartment outside Boston, which is both his home and TicketStumbler’s headquarters. There is the average sale in the secondary ticket market – between $300 and $450 – on which he draws his modest commission. And there is his mobile phone bill. To save money, he picks up, then insists on calling back using his unlimited long-distance Vonage account, at $14 a month.

“People just overpay for a lot of things,” says the 24-year-old, proudly describing how most of his office furniture was purchased on Craigslist.

Bootstrapping is nothing new in the tech world. The first Apple computers were built in a garage; Facebook was launched from a Harvard dorm room. But as investors snap their wallets shut and big-name Silicon Valley companies announce job losses, frugality has become a prized trait. Even at scrappy start-ups, lean is becoming leaner.

For Mr Haubert and his business partner Tom Davis, 24, that means staying on the east coast.

In May, the duo was selected along with 20 other groups to attend Y Combinator, a biannual boot camp – held alternately in Cambridge, Massachusetts and Mountain View, California – to help start-ups move from concept to company. The offer included $15,000 in seed funding.

Many Y Combinator alumni seek follow-on investment in the Bay area after the three-month programme. But by August Ticket­Stumbler was already turning a small profit – enough to cover rent, servers, food and “some really crappy insurance”, according to Mr Haubert. Rather than pursue investors, the team decided to stay in Massachusetts, where low rent kept them in the black.

“If we stay in Boston, we’re bare-bones profitable,” says Mr Haubert. “If we move to San Francisco, we’re not profitable and we need to take money.”

Jeff MorinJeff Morin (pictured), also a Y Combinator alumnus, came to a similar conclusion a few weeks ago. After spending two months in the Bay area trying to market, an online event organiser service, he decided to move to Maryland, where his 26-year-old brother Dan, the other founder, lives.

“We are a consumer product without any revenue at this point,” says the 24-year-old. “That’s a bad position to be in.”

Even sharing a basement apartment in San Francisco, he says, leached cash too fast. In November, he bought a one-way ticket to Baltimore for Thanks­giving. Back on the east coast, Mr Morin reflects on the past few months: “Prior to going through the whole Y Combinator experience, both Dan and I had different takes on spending,” he says. “I was a bit more of a free spender…and Dan was kind of, ‘Let’s be a little bit more frugal’.” Now, he says, both he and his brother are more focused on ways to trim unnecessary costs.

Recently the cost-cutting drive reached a new extreme. “We drink a lot of coffee,” says Mr Morin, describing late-night, caffeine-fuelled coding sessions. “I used to get the good whole bean stuff from a little cafe and grind it myself. Now we get the big bucket of Folgers.”

As the Morin brothers stretch their $15,000 in seed funding, the distinction between the company’s books and their personal finances has all but disappeared. “It’s not even much of a grey area any more,” says Mr Morin. “If we can get by without it, we’re going to get by without it.”

Virtual servers and old computers help keep a lid on spending

For web start-ups, the boundary between luxury and business essential can often be unclear. A 30-inch flat screen monitor may be a frivolous purchase, while an iPhone may be crucial to tapping into a new market.

Web entrepreneurs offer some tips for keeping IT spending in check:

??? Sign up for a virtual server. Rather than buying a dedicated server, start-ups can lease space on someone else’s machine. This avoids upfront costs and allows businesses to buy only as much processing power and storage as they need.

??? Use open-source software and older versions of applications. Web developers can often get by with old, cheap or free versions of the software they use to design their websites. For some, an open-source operating system, a simple text editor and an old version of Photoshop will do. “We don’t need to go out and buy the $500 Adobe suite to build our user interface,” says Jeff Morin from Anyvite.

??? Put old computers to use. Most people have a three- or four-year-old computer gathering dust in their cellar or attic. These machines may have trouble running the latest software, but they can be used to perform simple, important tasks.

That philosophy extends to their hardware and software purchases. The brothers both bought Apple Mac Books last year while still employed in salaried positions. Once they had quit to pursue Anyvite full-time, they supplemented their computing capacity by stripping down old machines and installing open-source operating systems to run a few essential programs. They also contracted cheaper “virtual” servers to host their site, rather than purchasing their own dedicated machine.

“From the technology side, we’ve done everything that we can to utilise what we had before we started,” says Mr Morin.

That reluctance to purchase new equipment is familiar to Ben Finkel, 27, co-founder of, a question-and-answer site. Last year he began developing a version of his service for the iPhone but balked at spending $200 on a handset for himself.

“I was borrowing people’s phones to test my application,” he says. “That now seems crazy to me.” He eventually caved in and bought his own handset.

Mr Finkel, who is based in San Francisco, appreciates a bootstrap approach. He and his business partner Andrew McClain built Fluther without any outside funding. It now receives some 300,000 unique visitors and about 1m page views a month. The advertising revenue from that traffic has been enough to support both founders’ frugal lifestyles.

Now, as they think about hiring employees, Mr Finkel says he is putting costs in perspective. “I’m really trying to do a better job not worrying about the small stuff,” he says, justifying his recent splurge on a whiteboard.

In spite of such purchases, the recession has prompted a few changes at Fluther. Mr McClain, who lives in Los Angeles, gave up his $450-a-month office and now works from home. The entrepreneurs have also experimented with repositioning ads on their site to boost revenue.

But they are cautious about expanding. Last year, they planned to hire nine full-time employees when they scaled up. Now, they say they can get by with four. “We think we can do a lot more of the work with contractors rather than employees,” says Mr Finkel.

He notes that the tactic of favouring contractors has also been pursued by some of the biggest companies in the tech sector. But he feels the tough econ­omic times validate the strategy he and Mr McClain have always employed.

In spite of the economic constraints of starting a company in a recession, the Morin brothers are happy with their choice.

“Most people our age don’t get to own their own business,” says Dan Morin. “This has been an amazing opportunity for us, even as we’re facing this huge financial meltdown.”

His brother Jeff makes a separate point: “I’ve been running a start-up for a whole year, in a recession. There’s a sense of pride in that.”

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One Response to Hungry start-ups on a drastic diet

  1. Anonymous says:

    You have to learn how to be thrifty in this cold business enviroment. Not just for tangible assets but things like <a href="">advertising</a&gt; as well. A good business person will reduce costs in every area possible.

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