The economics of 0-0.5

Reflection It has been 3 months since I left my last gig at Velocity Global to build Intermezzo. It has been eventful already. What I am really grateful for are the learnings - I had been a CTO for many years now, and even across employers, it felt my learning curve was slowing down. Starting Intermezzo was like a boost of (long lasting?) adrenaline injected into my bloodstream. Hopefully, without the let down of post adrenaline 🙂. An entrepreneurial journey is a learning path that has no peer in business, IMO.

I wanted to share a perspective on economics. 0-1 challenges are well understood (if you have not read the Blake Master’s notes of Peter Theil talking about this, it is a must read). I wanted to talk about the 0 -0.5 journey here, particularly from a perspective of the economics of starting a company. There has never been a time when the economics has been more favorable.

Let’s start with the obvious:. Here is our payroll calculation

Payroll

Sid’s bi-weekly paychecks for 3 months: 0x6 = 0 Kumars bi-weekly payroll for 2 weeks: 0x1 = 0

You have to be able to live without a paycheck for a while. Both Kumar and I are lucky enough to be ok with that, and not everyone can be in our lucky shoes.

COGS Then let's look at our COGS. That is another big fat zero. We have no sales or service delivery costs, and any product development or Infrastructure costs are going to be considered as operating expenses, not COGS.

COGS = 0

R&D Expenses/Operating cost

We have already covered Payroll costs. The other components of Operating expenses are

Office Expenses Software tools and subscriptions Cloud costs

This is where we are spending money. So how much is this costing us? Here is the - honestly, amazing - breakdown.

Office Expense: we work out of homes, the Menlo Park library (incredible!) and coffee shops. We have zero office expenses

Software tools & Subscriptions:

Google Worksuite: $6/person *2 = $12/mo. This includes email, google drive/docs, google meet

ChatGPT: $20/month. An absolutely essential and valuable resource. Since I use this for non-business needs as well, I pay for this out of pocket

Cloud costs

ChatGPT API’s: We are using this very sparingly at this point, and the expenses are very small, so I ignoring this

Cursor: $20/mo. A must have IMO for modern software development. Kumar is still a hard core old school kinda guy 😂, so he sticks with VSS.

V0.dev: $20/mo A huge accelerant from front end development if you are using nextjs. I reckon I build decent UI’s in 20% of the time it would take me otherwise

Supabase: Love Supabase. We are yet to breach the free limits, which are incredibly generous

Railway.app: ~$15/mo. Effortless deployments of software, automated scaling, so much to love about it.

Convex.dev: We are using it for non-product workflows - fit well within the free tier

Vercel.com: Deployment of front end assets. Still in the free tier, though we are getting close to breaching it.

As we start rolling out software, we will use posthog (love the generous free tier).

Well, that is a grand total of ~$70 per month. What you will note is that we have no direct costs related to AWS/GCP/Azure. For the first time in the past decade and a half, I am not using any of them directly - they really have become the infrastructure layer. This is a huge accelerant for us - not having to worry (mostly) about lambdas and k8s and firewall rules and setting up network groups - it just removes hassles and allows us to focus on what is really important - the customer problem.

It is amazing how low the costs of starting a company are right now, if you are willing to forgo a paycheck. I would say never in the history of software has it been so easy, from an economics or the incredible tooling. The other (long term) advantage of this is it allows us to defer needing to raise money to cover costs. You can do a lot with a small self-funded seed and be very selective in picking your investors.

Well, there you have it. Next newsletter, I will share more details on what we are building. I can share that it is broadly in the HR Tech domain, and the first phase of customer interviews is coming to an end. Kumar and I are narrowing down on our first use cases. Stay tuned!

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