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Guy Kawasaki has a very interesting post on his blog regarding start-up spending costs.

The CEO of Redfin, an online real estate company has opened up his books with a detailed expose of their operating expenses.

Yes, their model is different than the typical real estate shop where everyone is an independent contractor paying a vig to the man.

But the takeaway here is how much do you spend each month on your business in comparison? What metrics do you measure? These guys are spending VC money so they have an obligation to track their finances to the last penny and have a keen understanding of where growth is coming from and where ROI is generated.

Who do you answer to? Now that we’ve entered the 4th quarter of ’07 how are you doing this year?

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Glenn Kelman, CEO of Redfin writes:
Part I: Numbers Startups face one primary challenge: To never run out of cash. So when projecting costs, we heeded Guy’s advice that “the three most powerful words you can utter at a board meeting are, ‘We beat projections.’” This convinced us to develop the worst possible financial model that could still be used to raise money.We’re glad we did. True underachievers, we’ve performed at or just a bit better than this worst-possible plan almost every month, raising revenue projections only when forced to in December 2006. We’ve been able to stick to our plan mostly because absurd assumptions in opposite directions cancelled one another out. As the real estate market tanks, we may not be so lucky in the future.When first putting together our financial model, we looked online to calibrate spending assumptions. So many people have blown venture capital, we thought, there must be a manual somewhere on how to do it, at what rate, avoiding which follies. We couldn’t find anything. So we took some wild guesses and figured we’d see how they turned out. And now two years later to the day that we built our first model, here are the projections and actual results. Hopefully, you can learn from our experiences.
Rent, Per Employee, Per Month
Redfin Model: $250. Actual Redfin Cost (Last Month): $336Our actual costs are high because we just moved last month into an office with room to grow, which seems to happen every eighteen months. When people were sitting in hallways at the old space, we were paying about $200 per employee, per month. Class B space on well-traveled mass transit lines is roughly $20 per square foot per year in Seattle, $30 in the Bay Area. You need 165-200 square feet per person or more.At the extremes, Adobe supposedly allocates 435 square feet per person while Yahoo! allocates 220 square feet per person. The startup cult of cramming people into small spaces is counter-productive: people are what’s really expensive, not space. The cost Redfin really didn’t anticipate was for tenant improvements which you mostly have to fund yourself when signing sub-three-year leases. In September, we spent more than $100,000 to add private offices for our engineers on the hope that our current office will last us longer. It was probably too much money.Initial Per-Employee Equipment Cost
Redfin Model: $6,500. Actual Redfin Cost: $5,700Computers, 20” monitors, Ikea desk, decent chair, VOIP telephone, and cell phones for field employees. Our first phone system came from Craigslist, and we had to upgrade after a year.

Monthly Benefits, Per-Employee
Redfin Model: $600. Actual Redfin Cost: $471

Redfin benefits are competitive, but many employees are Seattle-based. Costs are 10% higher in California.

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