Originally produced for the February 2000 Microsoft Enterprise site

How much is enough?

Startups' spending on information technology reaches the stratosphere.

Veteran IT managers with experience at Fortune 500 companies are entitled to gasp when they see the IT investments being made by dot-com startup companies. Some of them are spending two or three times annual revenues. Usually, off-the-charts spending is the result of a special combination of circumstances--specific industry sector, headquarters location and other factors. Imagine putting half of your company's entire investment capital into systems, software and staff. . . each year for the first several years. Because this is occurring too.

To provide top executives with an idea of the level of IT investment planned to operate a dot-com startup, the Enterprise polled vendors, users and consultants. We then converted their observations into a series of questions. Once you've answered these questions, you'll have some idea of the level of IT budget spending that a dot-com executive team can expect.

Note that an enormous amount of money that is spent on IT never shows up in an IT budget. End-user departments and individuals have been spending off-budget money for software, PCs and other technology products for decades, and no consulting firm or CIO even makes a pretense of knowing exactly how much is spent on technology in general. As such, this Rule of Thumb also does not include off-budget IT spending.

The Enterprise would like to offer special thanks to Kurt Potter, a senior analyst in the Management Strategies & Directions service of the Gartner Group, for his time and support. He was gracious enough to provide the Enterprise with data that other research organizations do not appear to have. The Gartner Group is a leader in providing data about IT operations. Please see its Web site for more information. We also would like to thank Christopher Smith, CIO at HomeLife Inc., in Hoffman Estates, Ill., and Tom Jinneman, IS manager of RightNow Technologies, in Bozeman, Mont., for their insights.