What do I need to know about operating expenses?

The operating expenses summarize how you spend money to operate the business. When creating a budget for a startup, it is helpful to group expenses into departments. For example, a typical technology startup might have four types of expenses:

• Product and Engineering (e.g. product management; hardware engineering; software development; data science / AI / ML; quality assurance; DevOps; R&D; etc)
• Marketing and sales (e.g. brand marketing; lead generation and qualification; selling expenses; etc)
• Operations (e.g. server costs for software companies; prototyping/parts costs for hardware companies; etc)
• General & administrative (e.g. HR; finance; IT; etc)

For a startup, the #1 expense is almost always people costs (whether they are full-time employees or contractors). 

Hardware startups also have significant prototyping costs, tooling costs, and sometimes they need to incur significant non-recurring engineering (NRE) costs as well. 

Software startups tend to be more cash-efficient in that their expenses tend to be low (e.g. monthly payments to cloud-based services to host their software and support their software development environment).

Special thanks: Martin Trust Centre, MIT

Edit: Javier Rojas, 12/05/20