Monday Nov 5, 2012 by Izzy Azeri - Co-Founder, Stackdriver
You are starting a new software company and you need to put together a business plan. Part of that plan is a budget, and most of the near-term expenses in that budget are likely to be engineering-related. What are the major categories of engineering expenses? What are reasonable assumptions for each?
When I had to put together the first financial model for Stackdriver a few months ago, I was disappointed to find that very little information is available publicly in terms of actual engineering costs for start-ups. Recognizing that no two start-ups are the same, I'll share our budget and actuals over the first few months here in the hope that other entrepreneurs find the data points useful.
(Based on 10 engineers)
From the outset, we knew that we wanted to build a fairly senior engineering team and we knew that we would be recruiting from established tech companies in the area. We identified core benefits (medical/dental/vision) as an area where our talent pool tended to be very risk-averse, so we opted to invest in a benefits package that more closely resembles what one might expect at a more established technology company (Blue Cross PPO, Delta Dental, VSP, etc.).
With discretionary benefits, we opted to focus on perks that help our employees enjoy a balanced lifestyle. Accordingly, we implemented a flexible time off policy (no cap on vacation time), a monthly commuter stipend, company-paid house cleaning services, and a monthly full-day team outing (work+fun). Taken together, core benefits and perks represent a ~24% uplift on the average engineer salary.
We started from the outset with the policy of being a “Hardware-less Office” so we can eat our own dogfood as a SaaS cloud management startup. We have stayed true to this so far, with the only piece of gear (other than laptops and monitors) being a wireless router. With this, our cost per engineer for development environments cloud is $800/year compared to 5x that amount if we were to purchase and run our own equipment. We are currently running on Amazon Web Serivces (AWS), along with using Grasshopper for phones, Gmail and Google Apps, and Comcast as our ISP.
Being in the city was really important to us in choosing a space, as we wanted to be able to attract talent from start-up hubs along the MBTA Red Line (Kendall/Central Square, Innovation District, etc.). At the same time, we were less than enthusiastic about the inflated rents in places like Kendall Square, where established companies like Microsoft, Google, Amazon, and VMware are expanding and driving prices higher. In the end, we were able to lock in a rate of $27/sq ft in Downtown Crossing (which is the transportation hub of the entire city) vs. $57/sq ft in Kendall Square.
Recruiting can be an incredibly expensive part of hiring developers, so we made the conscious decision up front to roll up our sleeves and focus on in-house recruiting for as long as possible. As founders, we have spent about 25% of our time recruiting and we have also made it a focus for our team to reach out to their own networks. So far, we have not paid an outside recruiter and have been able to staff up to 9 people in three months. We probably won't be able to do this forever, but we are enjoying the savings in the meantime.
(Based on 10 engineers)
This deliberately doesn't include the $25,000 per engineer recruiting difference. We've done this completely in house so far, so if we compared our actuals to an Enterprise company who hired 10 people, the $250k difference would be off the charts.
All in all, in my original startup model, I had estimated about $60,000 per engineer per year for benefits and overhead on top of salary. Based on our actual costs so far, we are tracking to about $32,000 per year. Of course your costs could differ dramatically based on your location and the benefits that you choose to offer employees, but I hope the data points prove useful as you put together your first start-up business plan.
Photo credit: OpenView Labs