Letter from Investors to Startup Founders
Subject: “Your Costs Are Lying to You (and We Can See It Before You Do)”
Dear Founder,
We love your passion, your decks, even your obsession with revenue graphs. But let’s cut the drama: revenue is vanity, expenses are honesty, and costing is reality. Get costing wrong, and your entire castle floats in the air.
We’re not asking for rocket science. We’re asking you to know — truly know — how much it costs you to sell one unit of your product. Not in theory. In reality. And reality bites.
1. Costing Is Not Just Adding Bills
One organic snack founder from Indore proudly told us her pack cost ₹25. She priced at ₹30, beaming with a 20% margin. Then we asked her to add logistics, distributor margin, spoilage, freebies at events, and her “unpaid cousin” working full-time. True cost? ₹38. Every pack sold was a silent funeral.
Lesson: Bookkeeping is skin. Costing is x-ray. Don’t confuse the two.
2. Averages Are the Great Illusionists
A dairy startup in Haryana once bragged their “average cost per litre” was ₹35. What they didn’t notice: milk to nearby towns cost ₹28, but milk to far-off towns cost ₹48. Their “average” hid the fact that half their customers were loss-making.
Lesson: Averages are like selfies — they hide the double chin. Do costing per unit, per channel, per geography.
3. The Hidden Costs You Pretend Don’t Exist
Founders love to treat their own time as “free.” We’ve seen one founder in Nashik work 16-hour days, never add his salary to costing, and then claim profitability. It’s like cooking biryani, forgetting the cost of rice, and still saying it’s delicious.
Other blind spots? Spoilage, pilferage, compliance filings, delayed payments. Each looks tiny. Together, they’re termites in your profit wall.
4. Pricing Without Costing = Gambling
A bio-fertilizer startup in Punjab proudly priced their product at ₹800 “to match competition.” Only later did they realize their actual per-unit cost was ₹950. By then, they were stuck in contracts. Investors didn’t need due diligence to know the ending.
Lesson: If your pricing is floating on gut feel, you’re not an entrepreneur. You’re a gambler with an expensive ticket.
5. Costing Evolves (and Sometimes Backfires)
A Bangalore food startup thought moving from 500 packs/day to a factory would halve their costs. Instead, compliance, rent, and machinery doubled their break-even. Scaling didn’t reduce costs — it multiplied them.
Lesson: Don’t assume scale is a discount coupon. Recalculate costing at every growth stage.
6. Small Errors, Big Disasters
One fresh produce startup undercounted packaging cost by just ₹2 per box. Across 1 lakh boxes, that was ₹2 lakhs gone. Another ignored 1% spoilage. That 1% became the line between breakeven and loss.
Lesson: There are no small leaks in a small boat.
7. Costing Is Courage
We know why you avoid deep costing — it shows ugly truths. But real courage is facing the numbers, not running from them. Optimism won’t pay the bills. Honesty will.
If you’ve been sloppy, don’t be ashamed. Every founder is guilty. What matters is whether you correct course. Costing isn’t Excel magic; it’s survival instinct.
Closing Reflection
Dear Founder, stop telling us you’re “profitable” because you forgot half your costs. Don’t pitch with topline numbers when your net realization is a joke. We’re not impressed by your optimism; we’re impressed when you stare the hard numbers in the eye.
So next time, before you price your millet snack, your bio-input bag, or your cold-chain service, ask: “Do I truly know my cost per unit?” If not, don’t expect us to fund your illusion.
With both affection and sarcasm,
The Investor Community
Who’ve been fooled by PowerPoints, but never for long by P&Ls
