How much does it really cost to build a tech startup?

Posted by Shaun Symm on 07 April, 2016

We get to talk to our fair share of founders venturing into the world of startups for the first time.

One of the first things these entrepreneurs want to know when they contact us is how much it will cost to develop their startup. If you’ve never been involved in an application development project before, the bad news is that it is probably going to cost more than you think. The good news is that there are ways to save money and methodologies you can use to limit your initial investment.

Where your startup budget gets spent

If you are a developer, or if you have co-founders who are developers, then your experience will be less about actual money spent and more about a time investment (and thus the cost of that time). If you are a business orientated founder, sometimes called a ‘hustler’, and need your startup idea to be designed and developed for you then here is where your budget gets spent:

wireframing
web design
front-end development
backend developent
server infrastructure and devops
project management
product management

The size of the application, the quality of the design, the number of features and the complexity of the features all impact on what you’ll pay for these activities. If you want a native mobile app (iOS & Android) the cost is often higher than that of a web application.

What will my startup cost?

What does it actually cost to develop an application for a startup? The Next Web wrote a post in 2013 posing the question "How much does it cost to build the world’s hottest startups". For quick reference here are the proposed figures (these are 2013 figures in US Dollars):

Twitter: $50,000 - $250,000
Instagram: $100,000 - $300,000
Facebook: $500,000
Whatsapp: $250,000
Pinterest: $120,000

You get the picture … this is not a cheap exercise. However, there is some consideration for scale here and a portion of the money would go to a creating a product that can handle a large amount of users. If you’re starting out you won’t need this level of scale. Just know that if your product is successful you’ll need to scale and that will cost money (that’s a good problem to have though as it means you’re finding product-market fit and are probably making money).

To give a different view on costs to The Next Web’s findings, there is a US-based startup that is a 2-sided marketplace between non-technical founders and development teams where founders can hire design & development teams to build their startup. Here are some costs from the pricing page of their website indicating what you will pay for your application to be designed and developed (the costs below have been converted to AU Dollars and include design, development and project management):

Social Network with ‘medium’ complexity: $44,700 (web app); $53,900 (iOS app); $44,700 (Android app)
2-sided marketplace with ‘medium’ complexity: $52,600 (web app); $63,000 (iOS app); $52,600 (Android app)

Note that for ‘high complexity’ the price almost doubles.

From our experience developing startups in Australia, the figures above are just about spot on for version 1 of the product. That’s a lot of money if you are bootstrapping (paying for the build on your own) and it is a big gamble if you don’t have any validation for your idea.

Fortunately, there is a more affordable option.

The MVP (Minimum Viable Product) and running lean

Many first time founders feel that they need a full product to launch with. If it doesn’t have all features, and isn’t built to scale, then they can’t launch. That isn’t always the best strategy, especially if the idea hasn’t been validated. Usually, startups can be broken down into much smaller requirements that enable you to get a product up and running that allows you to validate your idea, at a lower cost.

Take Airbnb for example. Today they are a multi billion dollar business and are on track to book more room nights than the largest hotel chains in the world. But even they didn’t start with a fully functional application.

To help pay rent the founders decided to try and sell accommodation within their own apartment, while they were there. Crazy right? In 2007 the ’sharing economy’ wasn’t even a thing. They knew there was a large conference coming to town and so they wanted to offer an affordable accommodation option for people who were too late to book into surrounding hotels.

They spun up a basic website and put images of the apartment up. They made 3 sales, and most importantly they got some face time with their first customers. The rest as they say is history … with a lot of hard work along the way.

The first version of your startup doesn’t have to cost $50,000. You could spend less than $10,000 and validate your idea before you invest heavily. There are many ways to do this, all of which depend on your business model and what you are trying to validate.

Other strategies to reduce costs

If you are engaging web developers or an agency to design and develop your startup then there are other ways to reduce the cost. This even applies to an MVP. You can:

Write a basic specification. Keep it short and bullet point features.
Minimise features and stick to the critical requirements.
Create wireframes to show what is required and how a user will navigate through the website or app (this doesn’t have to be perfect, but by going through the process you’ll uncover potential issues and it will cement your thinking)
Stick to the plan and focus. Scope creep is a real threat. Think long and hard about the spec before the project kicks off and try and stick to the plan. You’ll save money and time. You can always make changes, and add new features, later.

The final word

Developing startup applications can be costly, but with a well planned strategy you can minimise your investment drastically and only invest larger sums when you have validation signals. The key is making that first step, and even with a small budget that step can be taken. Who knows, your MVP could become the next Airbnb.

Spend wisely. Focus. Get to market … quickly. Learn, always.