The competency of effective use of capital (capital deployment) is one of the most important competencies a startup can possess.
In fact, the most common way startups die is by being poor at deploying capital. Just recently, a friend of mine worked for a company that burned through $5MM in 3 months without getting customer traction... OUCH.
The topic of effective capital deployment has several complexities and is too often simplified as: "frugal people make good founders." Of course, there is a lot of truth in this simple statement, but there are other important factors that are ignored.
One of the biggest points of contention is whether startups should focus on getting the main features right, or whether startups should focus on building out the product. The answer is BOTH. The question is not "Which one is more important?" the question is "Which strategy should be used at which stage?"
The main distinction is that the startups that are effective at capital deployment early on are the startups that focus on their core value proposition and ignore the buzz and pull of customers asking for incremental "nice to have" functionality (aka: feature creep). This one factor is the reason why two similar management teams can get very different levels of traction on the same budget.
The trick, as a founder, is understanding how to get enough traction, quickly enough, so that you can raise money without diluting your founder's share. Of course, this strategy is not given much lip service as this is in direct conflict to how most investors (unlike founders) would like to see companies function. The reason for this is that VC's have a natural incentive to build bigger funds and deploy more capital into each of their portfolio companies, since there is a finite number of companies that every partner can manage.
Another factor that is often discounted is that certain startups are naturally easier to build on a bootstrap budget. This is recognized on the level of biotech vs. consumer web, but it is often discounted on a more granular level between two different consumer web companies (or two different biotech companies). The cost of development is quite easy to predict on a relative level based on the simplicity of the value proposition and offering. (just make sure you put a good cushion)
For example, it's one thing to have an end to end platform, and quite another to have a beautifully simple website like AirBnb. The question is whether or not a simple version of your value proposition can be built in such a way that it provides enough value for users.
In other words, if people can't find a taxi in the city and you offer them this service, it is not important whether the user interface is beautiful or intuitive as long as it satisfies an important demand. Conversely, it doesn't matter how intuitive or beautiful your UX is if the service does not satisfy any important market need.
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