So how much does it cost to start a company in India? 2Lakhs/5?
Prateek Dayal, Founder of Muziboo (read our review) does some math for you.
-
When we started Muziboo two years back, we had no idea how much money was needed to get a company off the ground. Both Nithya and I had our day jobs and we never consciously worked out the finances. We started to think about money only when we went full-time and eventually went broke. Like most people who have no entrepreneurial experience, we only thought of hosting costs (and were wrong there too!). During the course of two years, we have realized that even though its possible to bootstrap a startup cheaply, you need substantially more than $0. Here are some of the costs we have encountered on the way
Hosting & Backup Costs
Depending on how fast your site grows, you will have to get atleast a VPS server and eventually a dedicated server. Shared hosting does not work out most times for anything serious. For a VPS, you can expect to pay around $50 a month and for dedicated hosting, something around $150 a month. You will also need to invest in backups. We backup all user data (mp3, photos) and database dumps at S3 using s3sync. You can always backup locally on your harddisk but you need to consider how much it will take for you to restore all the data over your DSL connection. You would also wanna signup for a service like pingdom to receive sms alerts if your service goes down.
Apart from hosting and backup costs, you may have to spend on code/ticket hosting. You can always host your own svn/git and trac but its always better to outsource that kind of stuff. When you are starting with a small team (1/2 people), you can expect to pay $5 – $10 a month. Putting everything together, you can expect to pay around $200 a month on your hosting needs (once you achieve some reasonable scale). This comes down to about $2400 a year or Rs 120,000. Overall, you can expect to spend around Rs 130K to Rs 140K a year on your hosting related needs.
Chairs & Desks
If you are gonna be working fulltime on your startup, you will have to invest in great chairs and decent desks. You cannot work on a bean bag or your dining table every day as its gonna kill your back. We got two simple desks (Rs 1000 each) and two good chairs (Rs 3500 each). So for two people, expect to pay around Rs 10,000. You may also wanna invest in a whiteboard to make sure you have a place to discuss stuff. A decent sized board would cost around 3k.
Computers & Peripherals
You will need to get two desktops (or two insanely great laptops). I personally find working on laptop for long hours very hard. Depending on what you buy, you will need to spend atleast Rs 25,000 per person. Over time, you may have to buy better monitor or better keyboard (the Rs 500 keyboard sucks if you work 8-10 hours a day). If you are buying desktops, you will need to buy a 1KVA UPS which should cost around 20k. If you are buying laptops, you still need to buy a small UPS (Rs 3500) to power up your modem and router in case of power failure. Total costs for this kind of setup should be atleast 80k.
Legal Costs
You will need to get some legal documents in place. You will need Terms and Conditions and privacy document written up by a lawyer. Lawyer costs vary a lot so I can’t really talk about any estimates. It depends on what business you are in and how much work the lawyer will have to put in to get your documents ready. You should still expect to spend atleast Rs 25,000 on this . You will also have to file with the copyright office in US and register a designated agent for DMCA complaints with them . This process costs $80 (one time) and more details can be found here. This is absolutely necessary if you have a site where users are going to put up content. Filing this document makes sure that you can’t be sued without being given a chance to remove the offending content from your server first.
So overall , you will need about 2.6 lakhs in the first year to get your venture off the ground. Since this does not include any salary and office rent, you would need sufficiently more. For a two people startup, working out of a house (Rs 10,000 a month) and living a very basic life (Rs 20,000 a month), you will need 6 lakhs a year.
So overall, you need about 9 lakhs worth of investment to get even an internet startup off the ground.
[Republished from Prateek’s blog]
Share your opinion.
Hmmm. Good numbers there by Prateek. But one cannot say that an Internet startup requires abt 10 lakhs to get off the ground.
If the co-founders are really dedicated towards their startup, they will not need anyone else to join in during the ‘Getting off the ground stage..’ it all depends on their confidence.
Hosting – one should go for S3,
Office space – servant quarter, your bedroom or even a corner in your living room.
Legal costs – In case og Muziboo DMCA is necessary but for others its not. From my experience legal costs can be cut down by getting in touch with people who hve their friends doing some legal work. You can cut out a deal very cheaply there.
Startups in the infant stage are mostly about finding inroads doing things which costs less. Never ever draw salary (for that one should have a backup), being an entrepreneur one should always look for alternatives or just roll up your sleeves and get on with the work.
If its a startup the co-founders should hardly sleep to make sure their servers are up and running and their customer queries are always answered.
So I would support the number 2.6 lakhs (approx. $5000) by Prateek.
Good post Ashish.
definitely not 10 lakhs…2-3 lakhs is the correct amount !
@Utkarsh: If you are going fulltime into your startup, you will need to consider some sustenance and you will have to plan for it. You will also have to live somewhere and pay rent. When I talk of 20k a month sustenance (per founder) and 10k house rent, I mean that. Basic idea is that you need something like 9 lakhs (if you are 2 founders). This can come from your savings or friends and family. There is nothing worse than starting something, seeing traction and running out of money too early in the game.
Also s3 + ec2 is not a significantly cheaper option. For a typical startup, the cost comes to about $100 a month. If you can host on google app engine, its a different story.
@Prateek I would categorize entrepreneurs under two headings 1>’Who worked for around 5-10 yrs and wants to startup.’ and 2>’A fresher who starts right after university’. In case1, the entrepreneur would actually live on his savings (n probably will never draw salary) and live a very simple life till everything sets.
In case2, the fresher would borrow money from parents (in this case hardly any friends help, trust me), will depend on his/her parents for a while ( do some side job for pocket money) and again will never draw salary till things look good enough. So the salary part is gone (which actually is a major chunk of money as per your calculations).
Hosting is costly but then there are ways to cut that down too. If one is brilliant enough to host things on Google apps, way to go.
But definitely, the number would never be around 9-10 lakhs and it might also depend on the kind of startup. So its a very tricky discussion.
excellent post..:) Normally the costs overshoots that figure too Prateek…:) It’s myopic to assume lower burn-rates.
Agree with Prateek…our numbers were similar…
Hi Prateek
Excellent article. Really helpful.
Btw, can you recommend a good dedicated hosting company.
Thanks
Vinayak
Nice work. Very relevant information.
@Ashish actually also considering the expenses and mininum living cost of the founders….yup the figure does touch 10 lakh or maybe even more.
Being a student entrepreneur, the advantage we had is.. could depend a bit more on parents..:)
nice post…
Good Post! Guess extremely relevant & I see a lot of passionate & enthusiastic replies also. My two bits worth:
Hosting & Backup Costs – I have tried it in India & got much better deals also, service too. Though for some it may be good in US, but there is no harm in evaluating it thru.
Chairs & Desks – Absolutely the more comfortable the better.
Computer & Peripherals – Try a combo of branded & non branded. May turn out to be wee expensive but helps in the long run. Here friends are definitely a great help. And Yes 1 Laptop is a Must. Budget & buy everything for 9-12 months in advance. Do not go by the logic that we shall upgrade when it gets cheaper…Not worth it.
Legal Costs – One which wildly fluctuates, but can really be controlled thru referrals, known people sometimes free except the actual charges.
Running Costs – This is one place where everyone makes a mistake of budgeting very low. Be fair to yourself; treat yourself as an employee owner of the venture & pay yourself decent amount. Remember, India is NOT USA. Trying to save some money, wearing jeans etc. to meet somebody, bounces badly on you. Also remember, in the eventuality of winding up before successful & starting to search for a job, you still need something. AND if partners split, till you get someone, you need funds.
VISION, CONCEPT, IDEAS are great things, BUT SENTIMENTS do not work in BIZ. PRAGMATISM & REALITY RULES
@Prateek: Thanks for sharing your experience with the startup community. I appreciate that but I think that there are a lot of areas where you can cut down the cost depending upon your business needs. According to me the cost for 1 year for 2 co-founder team including everything should go from 3-5 Lakhs.
I would say 2-5 Lakhs is what you are looking at to start from scratch. Depending on the business segment you focus on, the cost may rise to 5L or you may be fine with 2-3L as well.
However, you are not adding the value of time that you are spending on your start up, so if you work for 6 months and your salary was 5L, you need to add another 2.5L to the overall cost.
Agree with most of the figures Prateek came up with. The legal costs would definitely make up for a big chunk but probably only if you are into some sort of user generated intellectual property (like music). I would especially stress on your monthly budgets which should in all seriousness include your salaries.
Out of personal experience of starting a business while in college, we budgeted our monthly expenses very low and when eventually we came out of campus, we realized very soon that there’s little fun in working on your passion when you have to do an optimization on every meal order. imho value your work, as you’d value your employees and attach a cost to it, that will enable you to live comfortably. (& i dont mean your opportunity cost).
The other thing probably, a little out of context, is if you have an opportunity to raise money, do it, even if you don’t think you need it. it always helps.
@Prateek Nice article. We are a product based SAAS company developing supply chain solutions for construction (developers, contractors, builders etc.). Our hosting costs are a bit less ($40 per month), and our legal costs were a bit higher, but you have the right ballpark. Other costs that we found that is worth mentioning is the money needed to spend on auditors, company secretary. Finally, depending on the type of startup, travel costs (for business development) and utility costs like telecom, electricity, and printing etc. also seems to add up.
Pingback: Starting an Internet BIz In India « My Blog
Well written Prateek. But I really agree with @utkarsh. I too feel that a bootstrapped startup can startup with something around 2 to 2.5 lacs unless its something with requires great deal of legal stuff bcoz as utkarsh says when you’re just starting you would least worry about when to draw your first salary and other such stuff, so no point of the costs escalating. So a figure around 10 lacs sounds a bit too high.
I quit last month after 1.5 years of work to start-up. I would like to hear more from people who have been saying that 2-3lakhs per year is enough to start-up. It looks to me that I’ll end up spending at least 7-8 lakhs in the first year. How can 2-3 lakhs include cost of running the business (web hosting etc listed above) and your living expenses (you have to eat too). And as someone pointed out, what about travel, office rent (!), broadband costs, etc.
If you employ even one decent person, you’ll have to pay a minimum of 10-15k a month – which means more cost.
Would be great if people who think 2-3 lakhs is a better estimate to reveal their assumptions or some cost saving tips.
I agree with Prateek, See when you rent a property for 10,000 a month the deposit itself is going to be 70,000 atleast, then the rent of the property 1,2 lakh. add to that computers, electricals (fans, tube lights, wiring, networking etc), phone connections, internet, tables and chairs, stationery, printer etc. cost goes to approximately 1 – 1.5 lakh in fixed assets atleast. Then you have the most expensive resource – manpower. you need to pay atleast 10 – 15k for a quality individual, no one cares about your startup but you, they see an opportunity they leave not even sharing profits… they will only flock when you are stable and making money. We needed 3 guys and the cost now went to 5 lakhs or so annually. then you may want to take your clients out or maybe even your staff on a birthday/ project completion etc etc. the cost goes up up and up. 10 lakhs level crosses easily and you don’t realize it … when projects stop coming or clients delay in payments and you need to pay bills.. One service after another gets suspended … you are in big trouble. Your folks are already not so happy with your decision to go on your own … look at Rahul he makes 60k he has his own car .. and gives his folks money and you… you have to borrow money every now and then
We started off 18 months ago, moved into a new office, bigger staff – bigger pays (for them) etc etc. clients are increasing and so are the bills, and it’s a rat race all over again … wait a minute !! Is that not why I started off on my own??
)
PS: I was passionate (and still am); it’s not just about being on my own)
I don’t understand the rationale of 2-2.5lakhs per annum. I am presuming that you are talking about living a decent life which includes on the personal side – eating 2 proper meals, using a cellphone, having a house and electricity, water and phone bills to pay, maid for cleaninig, newspaper and magazine charges, drinking coffee for brainstorming at Barista/CCD,travelling by a decent mode of transport, having a haircut, smoking/drinking – whatever your vice
. And business side which includes meeting clients which might involve travel, STD/ISD calls, meeting prospective customers/partners, buying some essential software for running the business etc.
I speak from experience – make the worst estimate possible and then add a 20% to it. That would end up as your realistic cost of running the business. I think Prateek is actually conservative in his estimate.
The bigger problem is when you don’t know how to monetize your concept. If you don’t have a solution that “solves” a real-world need and gets you tangible $$ then you will realize that the burn-rate will add to the anxiety (you will be worried about running out of money at the end of your predetermined period – 6months, 1 year, 2 years). And mostly people call it quits even before you reach 1/2 the way. A better way is to have something that will generate continuos revenue (side consulting, teaching, part-time pizza delivery – whatever it takes) to keep your burn-rate low so you don’t (a) suffer from pangs of calling it quits within a few months (b) fret about smaller stuff in life and focus on the objective of the business.
Excellent blog. You have looked at all angles and puts a cost for that. Thanks for sharing this detail.
Pingback: Quora
Bootstrapping is something you do with minimum amount of money. Here you have mentioned almost everything you need to do to start an actual company – not the one bootstrapped. Bootstrapping does not need to have an office or virtual private hosting (restrict users like quora). Moreover, basic infrastructure must belong to the individuals having stake. Until you don’t get the platform up and running, you don’t need to put in heavy expenditures otherwise the basic concept of bootstrapping is defeated.
>Bootstrapping does not need to have an office or virtual private hosting (restrict users like quora)
Are you very new to web development? (no offence meant). Quora would have 10s of servers atleast.
Quora is no longer bootstrapped. @blogger1220 is giving an example – that costs can be restricted if you restrict users as Quora did. He is not implying that Quora has only one server now. Please try to understand the motive behind the comment rather than comment on the supposed lack of experience.
I don’t think Quora stopped people from signing up to lower costs. It was more for the community to grow slowly
Even if you don’t take the specific example of Quora, restricting access to your service to lower operation costs sounds very questionable to me. Anyway, everyone is free to work the way they like.
Of all the people who have commented here saying that you don’t need any of the above to run a company, I wonder how many have actually run a startup for a couple of years (and not just developed a prototype from home and abandoned it in a few months .. aka .. failed fast)
@Prateek –
1) The Quora Point – Why is quora invite only?. Go through this link. You will get the story clear.
2) “I wonder how many have actually run a startup for a couple of years (and not just developed a prototype from home and abandoned it in a few months .. aka .. failed fast)”
It all depends on your determination. If you mean that people only work hard when they have invested loads of money (just for the sake of it) thats no reason. If you are really interested in doing something you can definitely start with lower amounts. This concept works best for web based businesses.
Lets take an example -
1) http://sarkari-naukri.blogspot.com/ – How much do you think have they spent (they use blogspot) – Alexa India Traffic rank in India is 647.
2) pluugd.in – Alexa India Traffic rank – 489.
Do you think there is much difference?
And I definitely don’t think pluggd.in must have spent 7-8 lacs when they started. It was simply a wordpress blog and its just a matter of Rs 4000 – 6000 do get a blog up and running with hosting and domains etc.
What I understand from this post is that you are talking about some high end web applications that need some really good developers as well as infrastructure.
@Mahesh – That’s right. This is what I am trying to say. Quora has restricted more sign ups so that they can provide best quality with the infrastructure they have. Obviously 10 servers are not enough for the popularity they are gaining. Facebook has 60,000+ servers and google 4,00,000+ so 10 servers stands much behind them. Quora is trying to maintain quality with whatever it has till now.