Top Ways Startups Waste Money

Step inside the Group Partner Lounge to hear Y Combinator Group Partners Harj Taggar, Michael Seibel and Brad Flora discuss what startups waste money on-from marketing and sales to legal and hiring.
Chapters (Powered by bit.ly/chapterme-yc) -
00:00 - Introduction
02:19 - Hiring lies
04:50 - Contractors
06:51 - Marketing spend
09:53 - Brand advertising
11:02 - Approach events like a startup founder
12:20 - PR
16:01 - Lawyers
20:22 - Advisors
24:39 - Devil's advocate
Apply to Y Combinator: www.ycombinator.com/apply/
Work at a startup: www.workatastartup.com/
#startups #money #tech #business

[@rickhmason]

Love to hear the reverse, where not spending money costs you big time. I've been bitten more than once on my startups as a bootstrapper where not spending a dollar cost me ten or more.

[@halokart.official]

Exactly! More appropriately, what to spend your money on after PM-fit (without second-guessing)?

[@therealedgardososa]

You should make a video about it. I’d watch

[@rickhmason]

@@therealedgardososa Thanks but I only watch videos ;

[@GreenDimka1]

It's all about spending right: you can hire top people for the money, but they will be doing nothing usefull for you if you do not know by yourself why you actually need them.

[@martina7715]

@@rickhmason 100% we are not all billionaires we depend on those videos so we can learn and know more about start-ups

[@sydneycohen]

This part on ad spending from Brad is amazing: "The UI makes your feel really smart"

[@unlimitedirl]

So true!

[@mashpayne]

Even though I had a background in software engineering, I hired contractors to build the app. I ended up wasting 6 months in developing the MVP. I learned my lessons, fired all the contractors and developed the app in 1 month.

[@onatemedia8407]

Did you develop it yourself

[@KAIZENTECHNOLOGIES]

Six months is crazy for an MVP. That's junior dev numbers. They definitely did that to get as much money out of you as possible

[@ozzyfromspace]

about hiring contractors as a bandaid, there's a saying: "there's nothing more permanent than a temporary solution".

[@alexandreazevedo1667]

Wasting money comes from the lack of focus on validation. It's too tempting for early-stage founders to compare their startups with mature companies. They have clients, suppliers, processes, shares, employees... But once founders realize they must prioritize validation, they're able to question: "how much do I need to validate?", "How will this help me to validate?", etc...

[@TheConstitutionFirst]

*Great videos does anyone know of a good payment plan law firm that will do my investor contact with us.*

[@ChristianSoschner]

(21:59) simple explanation - when things go wrong, advisors get the blame. When something is successful, the founders take the credit for themselves - it’s a human thing.

[@GrowWithWill]

As a startup, mistakes will affect you twice as hard than being established as a company already. Very insightful video, I'm sure a lot of folks here learned a lot from this!

[@TheConstitutionFirst]

*Great videos does anyone know of a good payment plan law firm that will do my investor contact with us.*

[@DerDudelino]

Here is a little trick for PR: It's much less expensive to just buy a story than hire a PR agency. You can get a headline story at Forbes for 7K - if you need that for your investor outreach, just buy the space. You can do that with literally every publication. Publications will love you, when you come with a budget. They'll be skeptic, if you just want freebies, so free articles. You can get lucky and a journalist likes you so much, they give you a story but that's rare. We live in a time where media outlets are run like corporations and most don't allow their journalists anymore to just give you free PR, unless you bring them a lot of clicks. You can do it, this is how Elon Musk operates - he gives you massive amounts of clicks in exchange for scoops, but it's hard to get to this point as a startup.

[@ShaunHinklein]

this should be higher!

[@PatrikKron]

That does not sound like good journalism.

[@kaush949]

Is there a way to buy TV spots? Example Bloomberg Interview etc. ?

[@chapterme]

Chapters (Powered by ChapterMe) - 00:01 - Introduction 02:19 - Hiring lies 04:50 - Contractors 06:51 - Marketing spend 07:56 - Triplebyte 09:53 - Brand advertising 11:02 - Approach events like a startup founder 11:06 - WePay 12:20 - PR 16:01 - Lawyers 20:22 - Advisors 24:39 - Devil's advocate

[@NnamdiUba]

Thanks

[@nshar786]

Great growth hack! Lol

[@mnasir99]

Thanks 🙏 time saver.

[@sidekick3rida]

Thank you!

[@jamesclerkmaxwell8020]

Thank you

[@ozzyfromspace]

Lol I met a founder who probably took your advice a little too seriously. He offered me 1% equity (pre-seed) with no salary, to be the CTO and lead their team in building their platform from scratch. I very politely declined. He got offended anyway. Story aside, you all provided excellent advice. Thanks for advising us for free (see what I did there?). Viva YC!

[@stephanbranczyk8306]

For a CTO, they seem to recommend an equity share + salary equal to what the founder is getting, but with a one year cliff for the equity and a four year vesting period. Now the one year cliff could mean that you get zero equity if you're let go within that first year.

[@kristianlavigne8270]

Classic 😅

[@jaredbeckwith]

Hired an engineer without a code test. Cut my losses quickly and learned a valuable lesson!

[@ArnoldPranks]

Did you outsource to India or something?

[@jaredbeckwith]

@@ArnoldPranks PhD student in America

[@AutoHeroAustralia]

Ouch!

[@FrankOdongkara]

I think it's better to hire an engineer with previous experience building & shipping products in small teams than a code test. The best engineers will only take a code test for big companies with big pay and many inexperienced engineers will ace a code test anyway.

[@jaredbeckwith]

@@FrankOdongkara good perspective! Need someone who can ship product

[@ycombinator]

What has your startup spent money on that didn't live up to expectations?

[@bloodaid]

marketing on social media

[@NilsWestgardh]

Too early to say. But staying lean, vigilant and prudent.

[@christianburrus]

Dev shop. Such a waste.

[@khaldonevans4295]

Spend a lot going to events and conferences

[@vaibhavgeek]

keeping it in my bank account till everyone involved loses their motivation lol

[@holdilocks]

This is the Whole Raw Truth up one side down the other. Love this. Every contract hire I have had has been a nightmare, wait and wait no finished work, nothing to show from them. I ended up doing all the work I paid others to do except for manufacturing my molds. Even that went a way I did not pay for - they outsouced my made in america product to china.

[@perfectlycontent64]

Bit late finding the Ycombinator KZbin channel, but thank you so much for making these videos.

[@kirkh9044]

Thanks for another good one Harj, Michael, and Brad.

[@derek-yap]

Yep I wish I would have heard this advice 3 years ago. I paid a marketing agency about $12k, of my own money, for a custom website and I totally thought that would be the thing to boost my sales to the next level. Guess what? Nothing happened. It’s good to hear I’m not the only one who makes these mistakes.

[@saraeissa4954]

You’re definitely not the only one. Lesson learned for sure

[@DerDudelino]

Especially because on fiver and similar websites you find super-talented people that do a great job for a fraction of the cash. There are websites out there where you can basically make designers pitch to you their concept and you can choose the design, you like which means it's basically risk-free. They build it in photoshop, if you like it, they'll code it.

[@TheConstitutionFirst]

*Great videos does anyone know of a good payment plan law firm that will do my investor contact with us.*

[@allanshpeley4284]

Spending $12k on a website makes no sense. But investing $12k in direct response marketing makes plenty of sense if you have a good sales funnel.

[@margaretcezar2413]

Thank you so much. This is very timely.

[@vishalkhatri6723]

I don't have a startup but I am running a family business in agriculture sector and the information you provided was helpful.

[@rickitekgaaso2927]

It's interesting to observe how many founders end up making costly mistakes repeatedly. In my opinion, a major factor contributing to this pattern is the overwhelming stress and desperation that often accompanies the entrepreneurial journey. The intense desire for positive change can lead to trying almost anything in the hopes of achieving success. This eagerness to make a difference, coupled with the constant pressure to prove oneself, can sometimes cloud judgment and result in wasteful decisions. As aspiring entrepreneurs, it's crucial for us to learn from these experiences, finding ways to strike a balance between enthusiasm and prudent decision-making. By doing so, we can navigate the challenges of entrepreneurship more effectively and avoid falling into the trap of making the same costly mistakes.

[@ifoundaim]

Reframe advisors into investors ✅

[@Sondre7]

Another 10 out of 10 episode. One thing I discovered on the PR agencies is that you can just literally email the journalists directly. Thats what we did and we got a story every time. Used a template we got from YC on how to write the story. Also one more danger of using ads I had to learn the hard way, is that in the beginning your tracking is incomplete. So when you start using ads it looks like it is super cheap. And only much later do you find that actually these customers dont have the average conversion later in the untracker funnel, or they spend less or they churn at a higher rate. In our case all of the above - compared to incoming traffic which we were averaging them with and of course they would be better customers.

[@tigertim]

I love these so much, can we push the audio to the YC podcast as well? 🙏🏻

[@natarajanshanker5103]

I was at that PayPal conference, working for PayPal. There was a small buzz about some desparate startup dropping a block of ice in front of the building (Moscone center, nice place). We had a chuckle and went back to our booths.

[@EADvlogs]

I have done everything that's almost on this video, but especially advisors, lawyers in RP. Will be definitely points that I will be more careful with. Thanks!

[@GeorgeDonnelly]

This channel is so useful, thank you.

[@Rafi2002M]

Fantastic advice. I made some of these mistakes and avoided many.

[@heorhitalochka8296]

Awesome insights, please keep it up!!!

[@Hayorfe]

Happy to hear this at this hour. Have been listening to Micheal nowadays like. Sometimes I watch twice.

[@ljwhitmire200]

I had a small high tech startup. I wanted to hire people with experience where I didn't have it. However, in the long run, we needed to invent new technology in order to make our product and these people I wanted to hire didn't know how to do it either. We had to just grind it out ourselves. Lack of money prevented us from making a big financial mistake.

[@knownoversight]

Love this, such great advice, hopefully one day I'll be able to thank you chaps in person : )

[@liron00]

Wow so good, really nailed this topic

[@infrasite-infrastructureso6123]

Unreal. So so so true and spot on.

[@sdgamage]

I'm not sure if you're aware of this, but you're a life saver!

[@praisewilliams9012]

so enjoyable thank you

[@ProstudyHQ]

12:30 No joke, I am *quite literally* at this very moment debating this and listing out ALL these pros hiring a PR person would bring. It is so obvious, a no-brainer because I am the typical founder listed by Brad 😅. Thanks so much, you guys are a life-saver cause I'm definitely taking your advice here. - Derick. Edit: To add to this, I was actually considering a payment-equity split to "keep costs down" so it would have been a double whammy for sure. 🙏😄

[@TheConstitutionFirst]

*Great videos does anyone know of a good payment plan law firm that will do my investor contact with us.*

[@Do-Minik]

Great content thanks!

[@dwylhq874]

03:37 Sebastianism en.wikipedia.org/wiki/Sebastianism the fallacy that some hero will come and save/revolutionise your company.

[@marilyncrawford2362]

This video is valuable.

[@victorychinakwe]

Interesting topic, well explained.

[@VANCOUVERHOUSEFINDER]

Love the honesty

[@jpmaureira]

Great advice!

[@EricLawtonForbes]

I love the creative marketing tactics ✨ 11:56

[@felixkaranja4526]

I'd love to see a follow-up video to this one, summarised under by question: "what's the best money you've ever spent in your startup?"

[@TheConstitutionFirst]

*Great videos does anyone know of a good payment plan law firm that will do my investor contact with us.*

[@mlinganimatiwane]

I'm so excited to have watched this and can cleanly say its super exciting to be in an under-developed country on this one... we just really don't bother with much of this. But on the question of technical advisors, we're in a rather new market in South Africa, do we bootstrap and just work on our product or do we pay the technical advisory fee and utilise the optimizations they offer to accelerate our entry into the market?

[@pokpikchan]

Great advice.

[@nyakarundi]

my question is why accelerator programs do not offer those static services to their startups so they can just focus on their business.

[@bradmesser4807]

I love where some of the topend engineers can make, but it is also about what amount of leverage the business has within the market it participates in. It isn't like the FAANG engineers are that much better, but we the folks have a lot of leverage within that market

[@AISpyMedia]

Love this

[@jd-teilur]

you just saved me lots of money and equity 🙌

[@ericharr2293]

So valuable.

[@zhaochen6870]

love the energy of this video, thanks for the preparation and footages to keep us entertained while having a startup lesson.

[@fnikacevic]

Are investors/VCs encouraging companies to spend in any of these categories?

[@davidwilson192]

The hard tech startup professor equity stake statement really seems to be the case from my perspective as well. Most professor founders are more of an SAB member instead of a founder level employee working to build the company. Giving them such a high equity stake (if you are a co-founder with them) seems crazy and rent seeking from their part.

[@rajaspoorna6405]

Freak, this is amazing. Super helpful. I'm trying to get my feet wet in the whole start-up context.

[@rudhisundar]

Even though, I failed in the YC; I thank you these guys! Their advice helps a lot. Implement those.

[@allanshpeley4284]

Keep pushing forward. You'll get there. Also, you probably don't need much if any outside investment.

[@markg5986]

Thank you - very helpful, especially your advice on advisors.

[@sheikhfaizal2851]

This is one of the most fantastic videos I have watched. I can relate and I have learnt so much from this. Thanks you guys!

[@yoginero]

Sometimes contractors are the only people getting the work done. The employees get paid even if they don't finish the project and hard to fire in G10 countries. Contractors get kicked out when they don't deliver.

[@ZacchaeusNifong]

This is 100% right on.

[@tkidd250]

Great video

[@vaibhavgeek]

Hey, Do you guys think "Product market fit" is click or hit situation or it is something that gradually takes place. How would you advise a founder on their startup when they have two choices, 1. Add more features to product. 2. Pivot the product to make something else. Would love to hear examples of failures/successes around both of these.

[@VenturiLife]

Absolutely great advice, scaling is super hard for any company.

[@TheConstitutionFirst]

*Great videos does anyone know of a good payment plan law firm that will do my investor contact with us.*

[@davidtao6839]

🎯 Key Takeaways for quick navigation: 00:00 🤝 *Introduction to the video topic and speakers* - Introduction to the discussion about common financial mistakes by startups - Emphasis on the repetitive nature of the advice given to startups 01:37 💸 *Common financial mistakes made by startups* - Detailed exploration of the financial blunders early stage founders often make - Insights into why these mistakes are common despite advice against them 02:18 👥 *Mistakes in hiring practices* - Discussion about the pitfalls of hiring decisions in startups - Examples of poor hiring decisions, like overpaying or misunderstanding the role of contractors 06:43 📈 *Marketing and advertising misconceptions* - Analysis of marketing strategies and their often ineffective results - The illusion of success through advertising and the reality of its limited impact 09:44 📰 *The ineffectiveness of PR agencies for startups* - Debunking the perceived necessity of hiring PR agencies - Personal anecdotes illustrating the inefficiency of PR agencies in the startup context 16:00 ⚖️ *Legal expenses and managing lawyer relationships* - Discussion on the overexpenditure on legal services by startups - Strategies for minimizing legal costs and optimizing legal services 20:24 🧑‍🏫 *Misconceptions about the value of advisors* - Critique of overvaluing advisors and the cost of their equity - Advice on managing advisor relationships effectively 24:51 🚀 *Conclusion and summary* - Summary of discussed topics and final thoughts on startup expenditures - Emphasis on the importance of being financially disciplined in the early stages of a startup. Made with HARPA AI

[@gaiustacitus4242]

Anyone can file the paperwork to incorporate a business in a single afternoon. This includes filling out and filing the State and federal forms. As for corporate by-laws or articles of operation for a LLC, you should not just take the boilerplate document drafted by an attorney. You need to understand the document to ensure that you are willing and able to operate your business in accordance with the terms therein.

[@rkara2]

You guys should start your own Y-combinator.

[@peterwolftips]

Before I watch it, after losing my first strap with $160k burned, here's my own list: talent, assets to build the product before testing it on the market, workspace. These 3 were the majority for us, way before giving salary for ourselves...

[@harrison6082]

4:21 6:02 8:09 9:17 10:43 11:02 13:29 14:50 15:09 16:25 21:18 22:00 23:13 23:59 25:00 25:30 That's very good advice

[@ChristianSoschner]

Interesting video. How do you want your founders to move their company forward? Alone? For me bottom line is on all topics: hire or contract people within your budget that get the job done. In case they don’t move things forward - cancel the contract.

[@radian825]

Try hiring a bunch of people without product market fit. Being there. Just a bunch of people sitting in a desk "Working" on something that have no value. That's why they recommend to always found the company with a cofounder so you are not alone doing everything.

[@gaiustacitus4242]

The largest chunk of wasteful spending by modern technology startups is FEDERAL INCOME TAX on artificial profits. This is due to changes in the tax code requiring Research & Development costs to be amortized over 5 years (domestic) or 15 years (foreign). A business that generates annual revenue of $1,000,000 with annual R&D expenditures of $1,000,000 will now be paying first-year taxes on $800,000 on artificial profit. Unless the startup has investors with deep pockets the federal income taxes due will force the company into bankruptcy. FYI - This is an overly simplistic example that does not account for other legitimate expenses (i.e., taxes, rent, utilities, etc.) which would result in an actual operating loss.

[@clickworks-AaaS]

As a Portuguese, Sebastianism is something we refer to the same way. We use the story to paint a clear picture of a scenario that will never happen. The King lost his life in a battle that took place in what is now Morocco in the 1500s, and the saying goes that the dorment king would one day return in our darkest hour.

[@ScottMaday]

I love how all of these stories involve people wanting to wear the hat of a CEO without actually building a product, as if people would do anything except build the product they pitched in the first place.

[@radikaly1]

Spending money pre-market fit should pass the kitchen table smell test. If a founder thinks something like that will not go smoothly at a family/housemates meeting, it’s a good sign that the expense /“investment” ;) is a bad idea.

[@o.h.w.6638]

The best thing technical founders can do is find a nontechnical person to write a compelling story about your tech. If regular people are excited, you’re on the right track. Then send the story to journalists who are looking for good stories to write about. Simple and highly effective. Cost $0

[@herdi1510]

That is why I build never wasting investor money business model

[@braddeicide]

We're going to be huge! Don't worry about waste!

[@ThisPageIntentionallyLeftBlank]

I think the flip side of hiring experts is the tendency for startups to hire inexperienced employees who are asked to do things that someone with experience would manage far more effectively. FANG employees, sure, they’re F’ANG expensive. Hiring junior designers, building out an entire marketing team with executives and not having a product, having zero product leadership, always operating in “Crunch mode” - that’s a recipe for chaos and wasteful spending.

[@clementbaissat1580]

What tool do you use for the video and audio?

[@FelixHuray]

Please talk about what startups waste too much time on

[@pawandeore6989]

as a engineer at start-up i find the initial part funny!

[@galleon8129]

I watch YC videos to laugh sometimes

[@amorosogombe9650]

I'm actually going to make a point of complying with this.

[@bigbanknewyork3655]

Living this now at Convochat

[@schoolKit22]

neatest trick

[@peterwolftips]

"Valuable advices coming from people for free" - Like this video lol :D Thanks guys!

[@rocknroll7967]

I had a doubt. Lets say I have to develop an iOS app and in house developer is expensive. So should I hire a contractor from developing country (service based companies)?

[@wise5674]

YC content is obviously great content. The one downside is they don't spend enough time talking about the reverse of their guidelines. They do tend to be a bit too academic for people playing in the entrepreneurship game. You really can't make it one size fits all.

[@tottiegod8021]

As a senior engineer the first ideas are pretty obvious if you worked in tech more than 3-5 years.

[@marilyncrawford2362]

Thank you.

[@hillfortherstudios2757]

I'm new to your channel, are your companies software developers? Did your companies make a profit? I'm not talking about getting money from investors. I mean positive net operating cash flow?

[@lawyermahaprasad]

I know some startups who have made an advisor equity pool , just to use it for bribing ..... Thats Stupid as well as way too risky

[@rdubitsk]

Brilliant discussion. I'm close to beta launch and hopefully won't fall into these traps. As a non coder I built an entire back and front end myself. With that knowledge I was able to hire a proper programmer in India to rebuild the front end and I trained her on backend. Completely agree on not overspending on lawyers and marketing. I'm bootstrapping so every dollar is precious.

[@skyhappy]

How did it turn out

[@axel3895]

me: Cant afford anything even the attorney that works for me is my friend, whom I basically bully to do things for me.

[@Pierrrrrrrrrrrrrrre]

The issue with marketing spend is to think you have Market Fit too early... so you're trying to scale your acquisition when you actually have not proven your product yet.

[@bill5922]

I am in the process of building a community with goal an environment where intelligent and ambitious people get value and help each other to reach their goals

[@bill5922]

if you are interested or want more information. just check my instaa (same name)

[@georgebeier3550]

My family we jokes that we have a sixth sibling name "Somebody" as in "Somebody ate the ice cream" or "Somebody will make dinner". Who knew we really should have named him Sebastian!

[@kanayanaila1787]

Once u get rpoduct market fit amd got custoker trying to get the product out of your hand amd have productbtahtbalready make money tahsg whem you spemd money in this stuff

[@fgary]

What about lawyers that offer a deferred credit until your next round of fundraising?

[@TheConstitutionFirst]

*Great videos does anyone know of a good payment plan law firm that will do my investor contact with us.*

[@buravan1512]

*everything sounds like: LACK OF NEGOCIATION SKILLS... you give away equity too early, too fast.*

[@Ke_Mis]

You are such cool dudes :P Very nice vibes and advise :D

[@vladymir169]

So raise series B doesn’t have product-market fit?