In my experience the one most founders get wrong is how much more employees cost post-initial traction and post first round of financing. And how much that dramatically drives up the burn rate and cost of doing business. Dramatically.
Usually, in the early days, employees are fairly cheap. Founders barely pay themselves much, if anything. At lease some of the early employees work for “low market”, if that.
And then …
The company raises seed funding, or a Series A, or whatever it’s called, it’s first real chunk of capital.
And they realize they have to pay market now.
And they didn’t model it right.
And then – boom! The burn rate skyrockets.
I’ve seem this story again and again. You have to pay market — once you can. You have to.
But first time founders often don’t seem to truly model the real costs right. They assume the prior costs basis sort of “rolls forward”.
Turns out it doesn’t. You can’t pay a great engineer in the Bay Area $60k a year forever.
And this can cut your runway in half, if you aren’t careful, and haven’t modeled it right.
Those 18 months of runway shrink to 9 in the blink of a company-wide raise and a few great new hires.
