I may be totally out of touch, but why would someone give someone else $100,000 for an app? And why wouldn't $100k be enough? By the end they needed $700,000 "bare minimum."
I just don't get how this can cost so much.
Making something like this in one's spare time while getting paid with a salaried "real" job seems like it would totally be sufficient to get moving.
But assuming it really takes $700k on hand to get these bank sponsors, why not just change the model slightly. For example, integrate with Square cash or something similar. Square is dead simple to use and the money arrives instantly, not sure if it's integrate-able in this manner though, but the concept stands.
And then maybe when the company is really successful with tens of thousands of subscribers, partner with someone to add direct bank account integration.
Sorry if this sounds callous because I really don't mean it to be, I'm just flabbergasted the amount of money involved for some app someone came up with randomly.
You really need about a million dollars to make a marketable product. (not a lifestyle business) You can either put a million dollars of your own blood, sweat and tears in, in which case it'll be the wildest ride of your life, or you can deploy capital.
It looks like it's just code but it's not. There's a dizzying array of skills and knowledge you must be able to deploy effectively. If your product is not in an established industry and niche, if a bank can't understand you, that makes everything much, much harder. There's a reason franchises do so well.
When you get started, you don't know what's going to hose you. It's easy in retrospect to say that they shouldn't have messed around with a business model requiring a bank partnership to get started without already having that partnership before building anything, but they didn't understand that going in.
> It's easy in retrospect to say that they shouldn't have messed around with a business model requiring a bank partnership to get started without already having that partnership before building anything, but they didn't understand that going in
Doesn't have to be in retrospect. Why didn't any of the dozens of experienced investors they met with tell them this? "You're too early" is too wishy washy for them to have got the message.
Because it's rarely in someone's self-interest to give honest feedback, which is true for investors, potential employers, departing employees, and almost anyone else in a position to issue some type of denial. Instead, they part with something ambiguous, non-committal, and ideally flattering because it covers their butts and allows them to backpedal if necessary. Since the stated reason for declining the relationship is airy, you can't really get in a shouting match over it if the applicant/founder/whatever disagrees, and you don't offend them and preclude the possibility of future engagement.
Politically and socially, it's almost always best to speak in platitudes, be ambiguous and non-committal, and refuse to give concrete information or rationale that could be used in the future to show that you were wrong about something. People usually do have a specific objection when they're turning down a request, but they just know that it doesn't help them to tell it to you, which is why it's always wise to cherish those who care enough about you to be honest.
> Because it's rarely in someone's self-interest to give honest feedback, which is true for [...] almost anyone in a position to issue some type of denial. Instead, they part with something ambiguous, non-committal, and ideally flattering because it covers their butts and allows them to backpedal if necessary.
I broke up with a girl a few hours ago and this sounds so cruelly true.
This is so true. Honest feedback is so rare yet so useful I'm surprised there aren't more people in the business of selling it. The number of people who could use a good business coach, therapist, etc. far exceeds the number of people actually making use of one.
>People usually do have a specific objection when they're turning down a request, but they just know that it doesn't help them to tell it to you, which is why it's always wise to cherish those who care enough about you to be honest.
This, exactly this.
The next time I hear non-committal platitudes from a potential business partner, I'll understand better what is really going on.
"You can either put a million dollars of your own blood, sweat and tears in, in which case it'll be the wildest ride of your life, or you can deploy capital."
Generally you double an engineer's salary to arrive at the total cost to the firm of retaining their services. So that's 5 engineers for a year. This article puts a final estimate at 2.7x:
You also need to realize just how new and unproven Lean Startup ideas are in the larger context of business. In that world, a million is just getting started. Most software products in the world took much much more than a million dollars to make. You have to pay the project managers, creative team, etc etc.
> Generally you double an engineer's salary to arrive at the total cost to the firm of retaining their services.
It's a fair point thought I do think 1-3 engineers is still plenty for "most" startup products to get to MVP (not universal but general rule of thumb).
> You also need to realize just how new and unproven Lean Startup ideas are in the larger context of business. In that world, a million is just getting started. Most software products in the world took much much more than a million dollars to make. You have to pay the project managers, creative team, etc etc.
Established (and assumedly) revenue generating software is not the topic of the discussion. The comment I was referring to was that $1m is needed to make a marketable product. Its a bogus claim.
OK, we need to qualify what is meant by 'product'. I'm not talking about a palette swapped iteration on an existing product. I'm talking about something new that the market hasn't yet quite seen before. The sort of product Silicon Valley funds.
Even the palette-swaps generally cost anywhere from a quarter to half a million dollars to do properly, unless it really is cookie-cutter. I don't know the exact figures, but the company I worked for spent a sum in that neighborhood on an e-commerce site, and laughed at me when I told them I'd build them a new site in house for a modest pay raise. Software is really expensive, programmers have this blind spot around it I think because it's psychologically easier to undervalue software than it is to face the reality of economic exploitation.
It seems you have experience in this area and I don't want to belittle it, I won't contest your claim that you've done it for less, but I want to be clear that the expertise that allows you to do that is worth a lot of money, even if you didn't get paid for it. How much? Take $1 million and subtract what the firm actually paid to bring the new product to market, and there you go.
If it's your company, then you get to enjoy the competitive advantage that the cost savings affords you. If not, the people owning the company are arbitraging your expertise and they're getting the competitive advantage.
But it's not just your expertise. Your team has to be a cut above in order to build software products for less than the general market rate. Again, they are either getting compensated for it or they're not, in which case they form part of the competitive advantage of the firm. The entire Silicon Valley startup industry is organized around creating and exploiting this advantage, which is really why it seems to you that a million bucks is an outlandishly huge number.
> OK, we need to qualify what is meant by 'product'. I'm not talking about a palette swapped iteration on an existing product. I'm talking about something new that the market hasn't yet quite seen before. The sort of product Silicon Valley funds.
Something never seen before like Snapchat? Or something never seen before like Hyperloop? If its the latter then clearly you're correct in your assessment but most startups ambitions fall much closer to the former.
Your post here has got some valid points but you've moved away from the very specific "minimum $1m for a marketable product" to some very vague generalities.
> Even the palette-swaps generally cost anywhere from a quarter to half a million dollars to do properly
"Properly" is subjective. I could have a Snapchat clone developed easily for $100k - probably considerably less - lets just say iOS App and corresponding web app & server architecture. With the exception that it clearly wouldn't be able to handle the load Snapchat handles - but certainly enough to be marketable.
> which is really why it seems to you that a million bucks is an outlandishly huge number.
I never said a million dollars is a large number. I know how easy it is to blow through such an amount.
My argument was you don't need that amount to create a marketable product - whether you're a developer or not.
Perhaps In SV, you may be correct but most people do not live in SV.
The reason I feel so strongly about this is that your sentiment is a very dangerous one to propagate to new or would-be startup founders. Based on the number of downvotes I've received for disagreeing with your comment, it would seem that people believe you need $1m in the bank before you can go to market.
That's a very good way of making sure some entrepreneurs never bother trying.
Now you're backpedaling while accusing me of doing so.
> I could have a Snapchat clone developed easily for $100k - probably considerably less
Bearing in mind that a Snapchat clone by itself wouldn't be marketable, you'd need a lot of marketing to differentiate it, so could I. But you and I have expertise, and expertise is valuable and needs to be factored into the price. That's the point I'm trying to make. My old CEO knows nothing about software, he paid half a million for an e-commerce site. For a real software product built by someone who doesn't know what he's doing, a million dollars is the minimum. Anyone who comes to the table with less than that is going to get really badly burned.
If you come to the table with half a million worth of expertise, and zero dollars of capital, you will probably fail unless you focus hard on getting funded. I'd rate the skill of getting funded as worth around $150-200K. If you don't already have it, you're going to have to pour in more of your blood, sweat and tears.
> it would seem that people believe you need $1m in the bank before you can go to market.
No, they understand the meaning of "a million dollars of your own blood, sweat and tears".
It does absolutely no good to would-be founders if they try their hand at doing a startup thinking it's going to be easy. When I see these kinds of post-mortems, I see that clearly, a million bucks worth of effort wasn't put in. They worked too hard, and not smart enough. They didn't have the expertise to enter the market that they wanted to be in. They may not have literally thought that all of their competitors and potential partners were stupid and / or naive, but their business model implicitly assumed it. They failed to de-risk the business and the risk killed them.
> Are you telling me that to "make a marketable product" you would need to pay 10 engineers $100k for a year?
Engineering, product design, graphic design (these are not the same), marketing, and sales are all needed in various proportions, depending on the product, to make a "marketable product." Between all of those roles you could easily chew up $1million in 1 year when you account for e.g. ~2x salary:total cost of employee ratio and standard Silicon Valley compensation levels.
> Engineering, product design, graphic design (these are not the same), marketing, and sales are all needed in various proportions, depending on the product, to make a "marketable product."
I'm well aware. I've done this many times.
> Between all of those roles you could easily chew up $1million in 1 year
You could easily chewup $100 million too. Does that mean we should go ahead and say we can't make a marketable product for $100m? Of course not. Constraints are a fact of life - whether that be time/money/whatever. The challenge is getting to market given the resources at your disposal.
> standard Silicon Valley compensation
The business in question is based is OR. Also, and I'm going to sound facetious here but I'm really not trying to be, most businesses are not based in SV.
It did seem like a heck of a lot of money for an app that didn't really solve a big problem. It solved a small niggle, paying a child immediately over the app rather than wait and pay in cash a few hours later.
Maybe $700k is less than it sounds. Or maybe piggybank had some cunning plan to make a lot of money.
I don't think the app ever solved that problem. From the article, it sounds like the company spent most of its time trying to find a partner to implement that feature, but ran out of cash after being strung along by multiple Fortune 500 companies.
Salaries. Adds up fast when you have, or need to have, multiple people working for you. Even more so in SF.
There are also lawyer fees. And in their case, office. I assume it's harder to raise capital if you are in mom's basement, specially after getting angel funding.
I just don't get how this can cost so much.
Making something like this in one's spare time while getting paid with a salaried "real" job seems like it would totally be sufficient to get moving.
But assuming it really takes $700k on hand to get these bank sponsors, why not just change the model slightly. For example, integrate with Square cash or something similar. Square is dead simple to use and the money arrives instantly, not sure if it's integrate-able in this manner though, but the concept stands.
And then maybe when the company is really successful with tens of thousands of subscribers, partner with someone to add direct bank account integration.
Sorry if this sounds callous because I really don't mean it to be, I'm just flabbergasted the amount of money involved for some app someone came up with randomly.