The Real Cost of Building a Startup

Startup founders often underestimate the cost of building a company. And sometimes they’re being lied to by agencies who promise them fixed-cost quotes to build their software, making them feel like it’s all going to be clear and simple.

Unfortunately, the truth is more complicated...

1. Anyone who pretends they can tell you the total cost to build a software business is lying to you.

This is because...

a) The only way to initially succeed with a software business is iteratively. This means you release a version, you learn from customers, and then you iterate on the next version. This applies to both the software and the go-to-market strategy. You slowly find your way to product-market fit and growth.

b) Even when you find product-market fit and a healthy growth trajectory, competitors and other forces drive you to add features and capabilities over time (either to keep up with what everyone else is doing or to expand your offering and increase total addressable market - often both).

So, the truth is: The costs never end. Just like any other business.

2. It’s particularly difficult with startups because it often costs a lot of money up front to build a tech startup and takes a long time for revenue to outpace costs. It’s a big upfront investment, but then the growth curve and incremental cost to serve mean you’re eventually printing money. But until then, it feels like you’re burning money with no end in sight.

3. Points 1 and 2 are why tech startups often raise capital from outside investors. They need to support the upfront investment without panicking or making short-term decisions that limit proper product-market fit and growth.

4. Therefore, the real question for startup economics is: How much capital are you willing to invest in the startup, and how long are you willing to invest until the revenue curve blasts through the cost curve? What are the leading indicators along the way that the business is working?

To be clear, it’s unlikely that the money you can charge in the early days will come close to covering costs. If you try to charge big numbers for software transactions, you’ll do all the wrong things and almost guarantee failure.

5. The good news is that...

a. You can’t and shouldn’t wait until everything is perfect to start growing and even to start charging some money.

b. AI is making things a hell of a lot cheaper, and you can take advantage of that. You want people who have grown a young software startup from zero using scrappy and agile techniques (and AI).

c. You can develop a roadmap to try to estimate some of the time it’s going to take to build some of the most important features on your stack-ranked list. That will give you some semblance of when you’re going to cross key thresholds, but this will only be based on intuition and educated guesses. It will not give you hard data.

6. Being a startup founder is literally one of the hardest things you can do. Big risks and big rewards.

Make sure you fix things in order

Is your business broken?

Fix things in the following order. You can’t skip steps or it will might feel like you’re making progress, but the thing you skipped will come back and bite you later.

1. Focus areas

2. Board

3. Exec team

4. Team

5. Product

6. Distribution

Dare to offend

If you want to change hearts and minds, then you probably need to do something that creates an emotional reaction from people.

If you’re too concerned about offending users, customers and influencers - and as a result, soft pedal, your message - you’ll be just as forgettable as everything else from almost everyone else in the world.

Dare to challenge preconceptions, redefine norms, defy domain dogma to move the state-of-the-art forward.

Orchestration

In the Information Age, the bottleneck was attention. The result was newsfeed algorithms and ad networks that managed discovery and consumption.

In the intelligence age, the bottleneck is orchestration. The more abstract the goal can be, the more efficient the context and memory, the more recursive and parallel the swarming - the more miraculous the results.

The future will be breathtaking.

Vision

Setting and ruthlessly maintaining a vision over weeks, months, and years is often a thankless job.

But it's the difference between action and motion. Between motion and progress. Between progress and changing the world.

Stop and think once in a while

Regular reminder: Before choosing your path, it helps to choose your destination first.

Agile is the religion of Silicon Valley. Build a minimum viable iteration and ship - right?

The problem with Agile is that if you don't stop and think for a moment about the future, you can end up building a bridge to nowhere.

Take a moment to imagine your ideal future. What are the mental models, user experience metaphors, and business priorities that truly matter in the long term?

Then, and only then, do you decide how to name things, how to design things, and what compromises can be made to get tactical and ship a thin slice.

Staying in tactical mode can feel like "just getting sh*t done" - but speed and momentum only matter if you're heading in the right direction.

Orchestration

In the Information Age, the bottleneck was attention. The result was newsfeed algorithms and ad networks that managed discovery and consumption.

In the intelligence age, the bottleneck is orchestration. The more abstract the goal can be, the more efficient the context and memory, the more recursive and parallel the swarming - the more miraculous the results.

The future will be breathtaking.

Meta is your best B2B2C customer

Your best business partner for YOUR B2BC GTM strategy is Meta.

How can I make such a blanket statement?

Because Meta is the best business partner for almost EVERY business.

You pay them a few bucks, and they will put your app in front of people who care.

Sounds like B2C? Because it is.

People often think B2B2C is easier because "incumbents" already have the users.
The truth is, B2B2C is often a nightmare. Incumbents demand features that don't make your user experience better (in fact, they always make your UX worse), take ages to convince, and often result in much lower conversion than you'd hope.

Go get your own users - stop relying on other people.

They are not your customers - they are your competitors. Disrupt them.

Is your product too complex?

Strong opinions, rooted in best practices, implemented with great defaults

Everything else should be hidden behind a settings screen.

Multiple agents or one smart prompt?

For a complex AI use-case, there are currently two schools of thought...

School 1: You need to spend a lot of time and thinking (and investment) in creating a chain of specialist agents that each do a different job.

School 2: Just hit the smartest, best chain-of-reasoning model with an amazing one-shot prompt and let it do the job.

I think, wherever possible, you want to attempt to go with path 2.

Why?

Because the first approach gives you fine-grained control and observability.

However, the second approach allows me to bet that...

a) These billion-dollar frontier model companies will create smarter and smarter models that just get the job done without babysitting.

b) A model with full context of what it's done and what it's planning to do next is going to do a better job than different agents trying to infer intent and picking up the ball from each other

What do you think?

The future of UI powered by AI

Increasingly, apps will need to be "dual modality."

They will need a structured UX/UI with buttons and dials, as well as a chat interface for conversational change.

The real trick is how those two interface models co-exist and - most interestingly - how they cross over.

For example,

1. How little, strategic, and elegant affordances appear inside the structured UI to suggest "AI Intervention",

2. How little moments of structured interaction will surface inside chat to help users fast-forward to the right answer without long-form typing.

I've been working hard on this in multiple apps with my startup portfolio.

If you represent a funded startup or enterprise that wants to learn more, drop a comment below, and we can chat.

A product is not what you think it is

A product is not what you think it is.

A product is not a piece of software you make.

A product is a packaged, repeatable, scalable, predictable, marketable, monetizable unit of value delivered to market.

It may or may not require custom software.

It always involves the orchestration of multiple skills to deliver scalable solutions to people.

Costs don't matter - ignore them.

While you always want to manage your burn, your primary goal as a startup or scaleup is to geometrically accelerate your growth so that costs become rounding errors compared to usage, revenue, and, eventually, profit.

No, I won't sign your NDA

Every now and then, I am asked to sign an NDA before reviewing some of the initial details of a startup that has reached out to me.

Like an angel investor or VC, I do not sign NDAs to discuss your startup.

Here's a quick summary of why I stick to this:

1. Ideas aren't unique; execution is. My focus will be on the 10,000 decisions required for execution, not just the initial idea.

2. Avoids conflicts. I meet with many founders, and I may have already heard similar ideas (or will hear them in the future). Signing an NDA creates unnecessary legal risk that I might be accused of sharing information, even if I haven't.

3. Reduces friction. It eliminates paperwork and administrative friction that slows down initial discovery.

4. Filters for quality. It helps filter for founders who understand that the primary value is in execution and who are coachable.

That said, I do, of course, always act in a professional manner, treat the information I review as strictly confidential, and use it only in the best interests of the company and founders, even without a formal NDA in place. 

Of course, my formal engagement contract includes a confidentiality clause, since we're dealing with very important lower-level details.

Leader code switching

A big part of senior leadership is knowing how to "Code Switch".

Code switching is temporarily changing the way you speak (tone, intonation, word choice - even accent) to adjust to different people, personas, and personalities in your life.

For example, you may have heard people do this when talking to others of their culture - suddenly their accent deepens, or they use different words!

You probably do it when talking to your family vs talking to colleagues at work.

It's natural and typically happens entirely subconsciously.

Being a leader in a work environment requires the same skill. However, it typically takes more intentionality.

As a leader, you need to know what to say, how to say it, and when to say it to various audiences and forums in your business. The scenery doesn't change very much. The people are very similar, but the circumstances often require a very different 'code' or style for maximum success.

It's a key part of sending the right message and gently and effectively guiding action and morale.

AI has replaced me!

One of the product leaders I work closely with as a Fractional CPO has trained an AI Agent on all my public posts on product, leadership, start-ups, etc.

Now he checks all his work with it before running it by me.

Has he made me redundant, or has he made himself indispensable?

I still have a much better sense of humor (and incisive taste and judgment) that it can't match, though.

I still think I win this round.

How about you? Have you been replaced, or made yourself indispensable?

Did you stumble into a great new business?

If one or more of these things meaningfully change, it's a different business.

• Product

• Business model

• Target customer

• Geography

Don't do it casually or unintentionally. Each business requires a meaningful new investment in sales, marketing, customer support, etc.

This, of course, needs significant new capital/cash flow.

Non-verbal signals that are working (for or) against you

Rightly or wrongly, you can quickly (and detrimentally) communicate your seniority with your personality, word choice, and general confidence in any given room.

People can try to look past it to hear the substance of what you're saying, but the fact is, it's very, very hard and takes enormous intention and cognitive load.

Don't leave it to the other person/people to make up their own mind. Own the signal.

What signal are you sending?

What signals do you look for?

Effective M&A Strategy

What if you had unlimited money to buy companies to accelerate your business? How should you think about M&A?

That’s a "kid in a candy store" style question, right?

First, you would want to map out the entire business architecture and strategy for the next 12 to 24 months.

Then you want to ask the question "which companies might help us accelerate the execution of this strategy?"

But of course, you must factor in the enormous cost and complexity of integrating different tech stacks, cultures, and processes. Successful M&A is hard, costly, and disruptive.

In order to qualify as a candidate to meaningfully accelerate part of the business strategy, the target company would need to have a massive unfair advantage in the particular category of the business you're trying to accelerate.

OR

You should really only be considering companies you can strip for parts without planning to integrate their legacy tech, culture, structure etc.

Which parts?

A "part" might be “the team”. For example, you could buy a small amazing little consumer product startup and turn them into one of your cross-functional product squad to work on a specific product mission/problem.

A “part" might just be something like their customers. Take their database, migrate some percentage over to your core products (assume only a conservative fraction), and kill the rest of the business.

Ruthless? Yes.

Efficient. Also yes.

Everything else quickly becomes a quagmire.

AI supercharges whoever you already are

AI has a wonderful way of supercharging your superpowers and your weaknesses.

If you tend to talk a big game and lack rigor in your thinking, then AI will be a great venue for you to talk/think endlessly and create mountains of AI slop.

That's why AI tools require top 1% people to produce high-quality 100x outcomes.