The Right (And Wrong) Way To Spend Money At Your Startup

Before raising, most founders need little beyond essentials such as a laptop and a place to live. After a seed round, software startups may hire one or two engineers, while founders handle sales and marketing themselves. Hiring for those roles too early can slow learning and make pivots harder.

Before product-market fit, money mainly buys time to test ideas, so higher burn means fewer chances to find what customers want. Pete recommends monthly investor updates to create accountability and keeping half the cash in a separate account as a reminder to stay frugal. Founders should spend more only when they have clear signals of fit and know what spending can help.

After product-market fit, hiring salespeople can make sense if they are likely to bring in more revenue than they cost. Teams can plan hires around when people are likely to become overwhelmed, while tracking revenue per employee as the company grows. At Series B, founders need to understand retention and revenue quality before treating funding as fuel for growth.

Founders should keep monitoring retention as revenue grows, since churn can make growth spending ineffective. Early customer support helps founders learn what customers need; even as a support team grows, founders should stay connected to its conversations. Pete also warns against early ad spending that substitutes for direct customer learning, and suggests keeping ads experimental or using them only when payback is measurable.

Startups before product-market fit do not need the departments, offices, or branding of larger companies. Pete describes a $50,000 branding agency engagement as a waste for a B2B company whose buyers are unlikely to find it through its website. He also urges founders to share runway, burn, and revenue with investors regularly, since problems are easier to address when surfaced early.