It's so easy to miss the time cost of founder, while budgeting or planning and this is mostly because it isn't easy to calculate.I recently bought a car and lot of people thought my startup is on a rocket and so I am able to afford it. Truth is, it wasn't a lifestyle decision. Getting a car was a financial decision than anything else. I think of time as supremely precious while money is a commodity. So, it's important to assess the true cost of time, rather than just the face value of cash you spend.
Some of the approaches I use are:
Say I would have got X as monthly salary, if I was doing a regular job. Then X/480 (assuming 16 hours of daily availability) would be my hourly cost. Now use this number to calculate whether taking an auto is more economical than taking a local or not. Take this example: If it takes 1.5 hours to reach point A to point B via local train (cost 10 bucks) and 0.5 hours via auto (cost 100 bucks), which mode is more economical? If I take my market salary to be Rs 150,000/month, my hourly cost is Rs 310 roughly. Then, True cost of local travel is Rs 475 bucks vs Rs 255 bucks for auto. Local is 182% more expensive than auto in true cost. My car gives 15 kmpl and so at Rs 75/liter petrol, it is 50% cheaper than auto, while saving me precious time.
So your startup makes revenue Y. You hold X%. To reach your business goals, you need to put in Z hours per month. Using these three numbers, one can derive the true time cost. For simplicity, not factoring in the mom growth, here's an example:
Y = $100,000
X = 30%
Z = 480 (16 hours of daily availability)
True time cost = Y*X/Z = $62.5
Now use this number for cost planning.
And third approach is valuation datum and follows the revenue datum approach.
I feel particularly bad when time is wasted. For an early stage founder that's the most precious asset. Yes, cash flow is supreme and going by above approach, you may end up spending more in terms of "visible" cash, choking the cash flow. But in long term, not assessing true time cost will choke your vision flow and possibly cash flow in an irrevocable manner.
I really wish I had learnt this earlier.
About the author: