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Most startup entrepreneurs have felt the pain of working within the constraints of a tight budget. In a perfect world, with unlimited funds, you could buy all the equipment you’ll ever need, make full-time hires left and right and keep scaling aggressively until you reach your goals. But most of us have to contend with limited resources and an unsteady stream of revenue, and simply don’t have that luxury.
Fortunately, there are several ways you can save money in a new startup, all of which can set your company up for a brighter future.
The power of operating lean
Reducing your operating expenses and running your company “lean” is about more than just making do with limited funds. There are several advantages to keeping your expenses low, especially in the earliest stages of your company’s development.
- Preservation of funds. If you have a limited amount of money to work with, cutting expenses will make sure that money goes as far as possible.
- Forced efficiency. Operating lean forces your business to be efficient, leading to faster and better service for your customers.
- Higher profitability. Spending less money, while making the same amount of revenue, means enjoying higher profitability.
- Better scalability. It’s much easier to grow a business that operates lean and efficiently than one that’s bloated with unnecessary expenses.
- Tighter prioritization. By saving money, you’ll be forced to consider your business’s priorities with greater scrutiny — and you’ll be able to zero in on the truly important factors to your business’s success.
- Greater visibility and transparency. Keeping meticulous track of your spending also leads to greater visibility and transparency, which is great for partners and stakeholders.
So what are the most important ways to save money in a new startup and operate as lean as possible?
Related: How to Estimate Startup Costs
Your main office is going to be one of the biggest expenses in your business, and for several different reasons. But with the world running on digital systems and cloud-based architecture, the traditional office is no longer a strict requirement for most businesses. If you can, consider starting your business as a totally remote operation.
You’ll be able to save money on things like:
- Office leasing. Even in a city that isn’t hotly competitive, office leases can be ridiculously expensive. You could end up paying tens of thousands of dollars per month for a modest space, cutting into your budget unnecessarily.
- Transportation. You and all your employees will be responsible for commuting to a central location every day, costing all of you in terms of both time and money. Working remotely immediately gets rid of this unnecessary expense; you also won’t have to worry about paying for things like employee parking spaces.
- Employee salaries (in some cases). Working remotely means you’ll have the ability to hire anyone in the world — not just people in your city. If you live in a particularly expensive area, that means you can selectively hire people in less expensive areas and save money on employee salaries.
- Utilities. Don’t forget about the cost of electricity, gas, water and other utilities. You’ll cut them out immediately by working remotely.
- Office supplies. Though office supplies may seem like a minor expense, they can add up quickly. Everything from printer maintenance and paper to coffee and kitchen supplies can end up costing thousands of dollars every year.
Handle your own professional services (when you can)
When possible, try to handle your own professional services. If your business is young, small, and lean, you can take on many of these jobs yourself, even if you don’t have much experience. Professional cleaning is a perfect example; if you’re not able to work remotely, you’ll need to take good care of your office space, which means hiring a professional cleaner, right?
Unfortunately, professional cleaning services can cost upwards of hundreds of dollars a month. By contrast, you can pick up a vacuum cleaner and a handful of basic cleaning supplies with a small initial investment and take care of the cleaning yourself once a week.
Practice smart hiring
Next, work on practicing smart hiring. Employee salaries and benefits are one of your biggest recurring expenses, so if you can keep a tight leash on this category of your expenses, you can almost certainly keep your startup running lean.
Here are a few tactics to help you do it:
- Keep the team small. Some startup entrepreneurs immediately get overzealous, hiring as many people as possible. On some level, the logic makes sense; if you hire all the people you’re going to need in the future, they’ll have the continuity and brand loyalty that can keep them working efficiently for your business for years to come. But all that extra overhead when you don’t truly need the manpower can crush your business. Instead, it’s better to keep your team limited to only the people you actually need to take care of business.
- Hire people for multiple roles simultaneously. When possible, hire generalists instead of specialists, and consider hiring a person for multiple roles at once. Early in your business, there may not be enough work to justify hiring a dedicated HR manager full-time, but your HR manager hire can feasibly spend their extra time helping out with other tasks.
- Hire based on talent rather than experience. It’s tempting to hire people based on their experience; this is often a good move for established businesses. But experience typically demands a higher salary, and one that’s not always justified. Instead, your business should target job candidates who have ample talent and the right attitude, even if they don’t have much experience. They’ll be less expensive than their more experienced counterparts, but they’ll be likely to add plenty of value to your organization.
- Rely on freelancers and contractors. Not all your hires and partnerships need to have full-time roles. Consider supplementing your team with freelancers and contractors who work only when needed. It’s a great way to save money and allow your team to be flexible simultaneously.
Utilize free solutions when possible
In the business world, there are a lot of free solutions available, so don’t shy away from them.
- Open-source software. Why would you pay $1,500 per month for software that has an open-source counterpart you can get for free? Open-source software is often just as functional and secure as paid software; it just doesn’t carry as much prestige. Take advantage of it whenever you can.
- Social media. You can pay out the nose for advertising, or you can create a free social media account for your business and start posting. It’s true that organic reach on most social media platforms is limited, driving business owners to pay for advertising, but it’s hard to say no to free marketing exposure.
- Word of mouth. Don’t underestimate the power of word-of-mouth advertising. Give your customers exceptional experiences, ask for referrals, and network actively to spread the word about your business’s existence and value. It only costs a bit of time to stir momentum in this area, and it could grant you thousands of dollars’ worth of exposure.
Barter and negotiate
Use bartering and negotiating tactics to save money. With bartering, you can work with other startups and local businesses to exchange services, rather than paying each other money for the things you need. As a simple example, you can provide accounting services for a peer business, and in exchange, they can provide you with certain HR services. You’ll find that many entrepreneurs are not only willing to go through this type of exchange, but they’re actually excited about the mutually beneficial opportunity.
With negotiating, you can work to bring down the cost of the products and services your business needs to operate. Sometimes, you can get a discount just by asking for it. The more practice you have negotiating, the easier it’s going to be.
Don’t scale up too quickly
Finally, make sure you don’t grow your business too quickly. Many entrepreneurs, especially those new to the world of business ownership, are convinced they have to grow their business as much and as quickly as possible. While it’s certainly a captivating idea, and many of us would love to see our businesses running on a national scale in the first year, growing too quickly is problematic.
If you hire too many people, invest in too many locations or spread your business thin in the pursuit of growth, you’ll end up losing your culture, spending too much money and losing customers in the process. In other words, your entire business could collapse. Instead, focus on making small, sustainable and manageable choices when growing your business. Take things one step at a time.
With these strategies, your startup should be able to save thousands — if not tens or even hundreds of thousands — of dollars over the course of your first few years. Then, with a lean foundation and a focus on efficient profitability, your business will have a much better shot at long-term success.