Lean Startups and the Microsoft BizSpark fat bomb.

There is a lot of talk in tech circles about running a “lean” startup. Eric Ries, Paul Graham from the Ycombinator and many others investing in technology are all pushing this model of launching a company. There are quite a few definitions out there but they all centre on having a low burn rate. Eric Ries sums up the advice on achieving this:

“by taking advantage of open source, agile software, and iterative development, lean startups can operate with much less waste.

I suspect it is exactly that advice that prompted Microsoft to launch their BizSpark program. When the ad “Microsoft BizSpark – Programs for software start-ups. 3 years for just US$100!” showed up in my Gmail a while back I couldn’t resist reading the terms to find out what happens at the three year mark.

Having priced out some Microsoft Sharepoint based websites in my previous career, I had a pretty good idea what the punchline might be. On their site they explain:

“In addition to responsibility for the USD$100 program offering fee, Startups can continue to use the development tools they previously obtained through the program. If Startups wish to continue to receive updates to development tools, Startups can renew their MSDN subscription at usual rates and terms. To continue to use the production licenses, Startups may choose to take advantage of a licensing program like Microsoft’s Services Provider License Agreement program (or other Microsoft licensing programs that may be available at the time), but are in no way obligated to do so.”

http://www.microsoftstartupzone.com/BIZSPARK/Pages/FAQ.aspx#q9

While this sounds “lean”, to me, this is a fat bomb, waiting to go off. We all need to keep our software up to date for security reasons if nothing else, so its not as though its a real option to run without updates for very long. They know you are going to have to pony up sooner or later. After three years of writing Microsoft code and immersing yourself in their ecosystem, the likelihood you will have both the skill set and the motivation to start again on another platform is low.

While I thought that at the time, just today I read about the exception that proves the rule. The smart and obviously multi-talented duo behind Tekpub had some interesting thoughts on BizSpark they shared in an interview about their recent switch from .Net MVC to the open source Ruby on Rails framework:

RB: If the platform was holding up fine, what prompted the change of architecture?

RC: Money. We were enrolled in Microsoft BizSpark Program and it was great for getting off the ground, but projecting into the future we realized that everything – from our database down to our development environment would have to be paid for after 3 years. We also figured that we’d probably need a separate server to run videos properly (for streaming) to Silverlight (using Streaming Media) which would be another license cost – and, in addition, we’d need to buy Media Encoder in order to encode the video for Smooth Streaming.

This might not be an issue for a large company, but when we sat down to assess what the bills would be – well let’s just say that it was about 5 figures. We put our business hats on and tried to justify that cost – and we couldn’t.

JA: As Rob mentioned cost was one of the factors, BizSpark is great but it is basically a ticking time bomb.

The emphasis is mine, but the sentiments are theirs.The five figures number they mention, agrees with the numbers I came up with in my pricing exercise a few years ago. Working with a Microsoft Licensing specialist, I ended up somewhere a little shy of $150,000, for the server alone.

That gave me a pretty serious case of sticker shock at the time and still blows me away when I think of the implications of it for the organisation as a whole. While the market sets the highest price a company can sell its product/service for, it seems that for a lot of companies the lowest price is being set in Redmond. While I have to accept the former, the latter, fortunately, is optional.
Now I am not an economist, but the view from here is that the costs for a “lean” startup, look something like:

coffee + people + place

While for a Microsoft-based company or a BizSpark company on year 4 it is:

coffee + people + place + licence costs

If both those companies have to spring for developers and all the usual stuff, then when prices are high the lean company would have a higher profit margin and when things get competitive they can drop their prices lower. A BizSpark business will be able to behave like a lean startup for the first few years, but will moving up a few weight classes while others in the field stay lean. Effectively the lowest price you can sell your product for is suddenly being determined in Redmond rather than in your office. For those tackling tough markets, or dealing with big organisations where you can easily run out of money waiting for a sale to come through the pipeline, this should be a terrifying prospect. With recession talk and belt tightening all around, why would anyone think running lean is less important on year four than it is in year three?

Update – Feb 2014: It seems like even success can’t protect you. Having exited the Bizspark program somewhere around 2011, and seemingly having coasted as long as possible on their exising licences, Stackoverflow  co-founder and Bizspark alumnus Joel Splosky is now balking at the licencing costs for Microsoft’s SQLserver.

He took to Twitter asking about porting a large database to Postgres. When prodded for more detail he added:

If you read the full exchange you can see that the suggested remedy ends up being to use Stackoverflow’s “posterboy” status as a Microsoft success story to work a deal with Microsoft for some reduced rates, which brings in Microsoft’s Scott Hanselman:

The thread ends rather suddenly as the whole thing goes offline as the Bizspark posterboy is presumably offered whatever deal is required to keep their success story looking like a success. Illusion of financial viability maintained. +1 Microsoft.

Let’s also ignore the face that Stackoverflow’s other co-founder Jeff Atwood decided to use Ruby on Rails, Postgres and Javascript for his new project; discourse.

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