Conventional wisdom is that you can launch a garage start-up with just a laptop and an internet connection, but what is the baseline cost to get the ball rolling?
There are many costs to consider from basic costs including; business formation, branding creation, securing web domains, printing business cards, market research to more involved costs such as ongoing salaries (or contractors), marketing, product development and production.
You need to be prepared to put some money on the line to make your start-up dream a reality, but how much?
Is £10k the magic number?
According to PeoplePerHour (PPH), £5k is more than most tech companies need to launch their product. In the technological age, where you can avoid a High Street presence, build a website for no cost and reach a global audience, it has become much cheaper to launch a start-up. In fact, PPH state that between 1995 and 2010 there was a 99% reduction in the cost of tech entrepreneurs launching their products, and this number has continued to fall.
However, this is only to launch a product, not to create a sustainable business responsive to change and resilient to disruption. Unicorns are in decline and this is becoming the era of the surviving Cockroach.
Brian Morgan, founder of Adventure Life, spent just $3k on his initial start-up costs (for two brochures and a laptop), but then had to spend substantial amounts advertising in magazines such as Outside and National Geographic. Without additional investments, funding, and a revenue created by the existing product, Adventure Life would not have thrived.
Opinium Research states that micro-companies will need, on average, £41.5k to launch and sustain their business. This is considerably more than the magic £10k figure, but not an impossible sum to attain.
The Government’s start-up scheme offers loans of between £500 and £25k. The broader industry also offer services such as free business advice, incubator and accelerator programmes and facilities that may not otherwise have been available to fledgling business owners. Crowdfunding platforms can help, and utilising funds from investors are also legitimate ways of raising enough money to help your start-up get off the ground.
However, business owners must consider the cost of funding and how much in the way of ownership and control they are willing to give up to see their business grow. 50% of a successful business is better than 100% of a failure.
Where does my money go to?
£40K is a lot of money, so where does it all go? Here’s a quick list of the most common business expenses to be aware of:
- Rent and facility
- Business travel
- Equipment maintenance
- Supplies and equipment
- Legal compliance/securing Intellectual Property
- Marketing and promotion
- Business insurance
- Taxes and National Insurance
All of these are integral to setting up your start-up as a legitimate and sustainable business. However, the bulk of the investment will likely be used in developing the product and finalising the concept before taking it to market.
Product development doesn’t stop there either – it’s a continuous process. By using feedback from the launch, you can improve the product and adjust it to the customer’s needs. For example, Facebook has come a long way from Mark Zuckerberg’s Harvard dorm room in 2004, but still required $1.06 billion for research and development over a decade later, in 2015’s first quarter.
In short, it’s possible to launch a start-up with £10k or less, but to create a truly sustainable business you must be prepared to invest up to four times this amount to give the new venture the chance it needs to succeed. More money gives you more scope to experiment and develop your concept further, but don’t be afraid to start the process with less than £10k.