What Costs Are Associated With Tech Startups?

Tech is everywhere today. It seems to be a force to be reckoned with. And yet, at what cost? In some ways, tech contributes to society without being a net gain. Technological change has been tremendous, but it is also sometimes dangerous to the freedoms we cherish. It is up to us, as consumers, to protect them.

Tech is what it is because of venture capitalists. Venture capitalists fund technologists, like me, who are working on new products or concepts. Because the product or idea is at an early stage of development, with only a small market of potential buyers, there is zero marginal costs for the venture capitalist to back-endize their investment by funding the early development stages.

Tech is a cost because the company that creates it needs to hire researchers, designers, technicians, sales people, marketing managers, and other employees. Each of these employees has a specific role to play in building the new business model. Tech companies need to have an infrastructure in place before they can start building that infrastructure, and there are costs involved in that. A venture capital firm looks for a company with a strong strategic planning process and an internally focused management team. Without those things, the costs cannot be rolled into the budget provided by the venture capital firm.

Tech startups may use debt or equity to fund their operations. Often, the business plan offered to potential investors outlines a business model that assumes no debt. That assumption may not be correct in every case.

The final cost associated with tech-enabled businesses is marketing. The startup costs associated with creating a product may well exceed the amount spent on marketing. As a result, startup owners may not see a return on their investment right away, but a successful company will use its new marketing dollars to expand its footprint in its market area and attract more customers and business. Again, the costs required to achieve those goals vary depending on the type of business and startup.

Even if a technology products company becomes profitable, a large part of the company’s resources will likely go to paying for the research and development required to support the innovation. Investing in R&D may be the best way for startups to achieve long-term sustainability. It allows them to use their retained cash in buying the technology products that eventually earn them a profit. In order to attract venture capitalists, many startups focus on technologies that have already demonstrated their ability to sell. However, if they had also invested in scalable business models, they would be able to use their retained funding to further develop the technology and drive sales.

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