Startups · Fundraising

What are some often overlooked ways to save money at an early stage startup?

Anonymous

May 24th, 2015

My company is still in the very early building stage. There are only 2 of us employed full-time, with another 1-2 contracted engineers that work on an "as needed" basis. We aren't ready for investors, and don't have any alternative source of funds. We've been working off my and the other cofounder's savings. While it's unlikely that we will run out of money anytime soon, we still want to be frugal. What are some often overlooked ways in which we could save some extra cash?


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John Seiffer Business Advisor to growing companies

May 24th, 2015

The biggest waste in startups is to build something people don't want to buy. The Lean Startup Methodology was designed to reduce that waste. I would follow it rigorously before building anything. A common misconception about the method is that you first build a minimal product and see what response you get. When you do that wrong it's actually wasteful.  In a strict following of the process - which results in less waste you'll test hypotheses about the customer's problems - not mentioning your proposed solution - till you find a problem people are happy to pay to solve. Only then you'll test solutions. An MVP is one learning tool sometimes (but not always) actually a product. 

Good luck and keep us posted. 

Mike Rozlog Advisor at TechColumbus

May 24th, 2015

If, and it is a big if, you have a senior staff, moving to the cloud and vitrualization is a huge money saver.  We moved as many things to the cloud as possible, things like Box or Dropbox, Github, IBackup or carbonite, Asana, and I moved everybody home.  Therefore, I setup VOIP phones for each employee and each person gets a pro skype account as well.  I saved 43% the first year in capital expenses, and another 30% the second year... each year we add new services as they become available and I try to reduce the amount of expenses.  Now I pay $50 for cell phone per person per month and I also reimburse the highest speed internet, plus office supplies, etc I keep my monthly employee cost to around $245 - $300 per month... compared to a brick and mortar shop and the expenses, upkeep, etc on that it is huge saving.  

Most people ask do you lose interactivity?  I personally do not fee we do, anytime someone has a question or we need to get together and share, or review, or walk through code, walk through a new website, or marketing, it is as simple as a button click.   In addition, I think I get more people sending more time in the office working, because it is very easy to walk by the office and say, "wow, I should check x...," three hours later they leave the office.  Again, huge savings, which can then be spent on more resources!!! ;-)  

One last thing, find the best developers you can for the money you have... in addition, make sure to research the firm... I wrote an article on the security of source code, here: http://sandhill.com/article/who-has-a-copy-of-your-software/  it is something to always keep in mind when finding people to help develop software.  You don't want to introduce new competition in a short time if the agency / people are not on the up and up.

Alex Eckelberry CEO at Meros.io

May 25th, 2015

I have launched several successful companies with almost no capital. The last one I grew to $50 mill in revenue with a great exit. It can be done. 

The key is that I focused on surveying the heck out of users to really understand what they wanted, and what messaging would resonate with them. I made a product that matched that desire (and made it great), put in great support, then user community/press outreach, then marketing activities, then sales. 

If you use surveys extensively, you will find that your hit/miss ratio goes down. 

Re the MVP model, it's okay, but it's really more of a thought process. You can get into the MVP model and make a piece of junk because it's "good enough". The quality and feature bar has to meet the market expectation. 

The product is really important, and the laziest, cheapest way to get to success. 

I've written some blog posts on some of my experiences. Feel free to check it out at blog.eckelberry.com. 

Ming Tsui

May 25th, 2015

My advice is do everything yourself and never rent an office space until you have customers growing

fast. Office space costs too much money. Maybe even ask friends with the skills to help out. You never

know if you don't ask. Most of your friends might not have the time to help out but those friends that

do might be your true friends. It all depends on what needs help.

Andrew Lockley

May 25th, 2015

Here's my top UK miser tips, with approx savings per year. Save a third off rail travel with a network rail card - 1000 Get a menial job 1 day a week with your incumbent competitor - 2500 Rearrange office desks, rent out 1 desk - 5000 Swap sky/cable for Netflix and freeview - 200 Buy household products in bulk on Amazon - 500 Swap the gym and tube travel for a bike - 1000 Shop in the evenings, buy last-day products and freeze them - 250 Switch to SIM-only or renew with a pre-pay contract phone - 200 Take in a lodger - 4000 plus network Ditch the car - 3000 Cut charity donation in favour of volunteering (you learn WAY more) - 200 Cancel a subscription you no longer use - 100 Turn heating down to 17C - 100 Switch utilities - 250 Buy a refillable water bottle - 200 Pick cheapest sandwich options for lunch - 400 Swap entertainment spend for memberships, eg cineworld card 100 Request books from libraries instead of buying them - 100 Get snacks, etc in multipacks and keep them in the office - 200 plus time Switch supermarket or drop branded goods - 1500 Move to a cheaper area - 2000++ Offshore administration assistants - 3000

Dimitry Rotstein Founder at Miranor

May 25th, 2015

Probably the biggest saving for me was to start writing various legal documents (user license agreement, privacy policy, terms of use, co-founder agreement, etc) on my own. I need a lot of these things, and lawyers ask for about $1K for each. If I paid them, I'd be bankrupt long ago. On the other hand, the chances I'll actually need to rely on these documents before I can really afford to hire a lawyer as slim to none. In fact, in one of my short-term projects I got over 10,000 hit on the website, but guess how many people clicked to view the terms of use and privacy policy? Zero. If I'd pay even a penny for them, I'd be feeling pretty stupid.
Of course, for legal reasons I can't recommend this approach, but it has worked for me. Besides, it's actually fun writing all this stuff yourself. At first I had used ready-made templates, but now I can do it from scratch (or adapt my previous work). I even learned the legal jargon - all this "hereto", "thereupon", "notwithstanding the foregoing"... It's not as scary as it sounds :-)

David Hassell CEO, 15Five

May 25th, 2015

Rather than focusing on minimizing expenses (for which lots of folks have already provided some great ideas), I like to think about the income side of the equation.  It's never a good idea to be running purely on savings for long, if you don't have to.

One thing that I did while starting 15Five, in addition to minimizing all unnecessary expenses like office space, etc, was to do a small amount of high-value consulting.   For example, I was able to run 2-3 full-day strategy retreats for other CEOs/executive teams that would cover my living expenses for the rest of the month, allowing me to focus on 15Five the rest of the time.  In addition, the strategy work I was doing was related to what we were building, so it was a double win in that regard.

Related to what John Seiffer mentioned in terms of taking a Lean Startup approach, one approach that's often helpful is to find people with the problem/challenge you're looking to solve with your software/app, and charge them to solve it manually for them.  This a) helps you quickly validate whether you have identified a problem people that's a big enough issue that people are actually willing to pay for it (you have not validated this unless they have given you money -- saying they *would* give you money often isn't 100% proof), and b) lets you get paid for the customer development research you need to do anyway.  

If you haven't read the book The Lean Startup, I believe there's an example in there about a startup team who were wanted to build a weekly menu planning app that would produce shopping lists based on their supermarket's in-stock inventory.  To start out, they stood outside a supermarket and asked people as they left if they wanted this service -- and then did it manually for them to learn what worked and what didn't.   This is obviously unscalable, but it's not meant to be done long term.

If you can't or it doesn't make sense to sell your services to manually solve the problem, even if you can do a few days of work per month of high value consulting (ideally at least tangentially related to the space you're in, but if not it may still be a good idea), you could really cut down on your burn rate and extend your runway.

Dimitry Rotstein Founder at Miranor

May 25th, 2015

Here's another life-hack to save money (especially relevant for full-time entrepreneurs).

Sitting at the computer all day is bad for your health, right? What's the answer? A gym membership? That costs money and still doesn't motivate you enough, so you skip gym more and more until it's a pure waste of money.
It's already been suggested to swap car and gym membership for a bicycle, but I've come up with something even better.
I found a very-part-time job that involves physical strain (cleaning, gardening, construction), 1-2 hours a day on average, but I think of it as a gym with the following benefits:
- I can't skip it, because technically it's a job (talk about motivation)
- I'm doing something productive for the community instead of dull repetitive motions at the gym
- The work is so automatic that my mind is free to wonder - I actually thought about many exciting ideas concerning my startup during these "gym" hours. It doesn't work for a conventional gym where your mind is filled with counting repetitions, sets, and seconds between sets.
- I'm actually getting paid for it

BTW, by now I lost 20 lbs at this gym - that's more than any conventional gym I can remember. And I don't intend to stop at this.

Aswan Morgan Mobile Entrepreneur; eCommerce Personalization, Optimization & Conversion Expert

May 24th, 2015

A few things that helped me out...
  • Use services such as Clerky for business entity formation and some post-incorporation activities. While doing so, always interrogate the services these sites are trying to sell you. In many cases (such as Foreign Entity Qualification) it's cheaper filing directly with the state or federal organization.
  • Depends on your situation, but consider forming not as a corporation as that may have pass-through tax advantages. Again, depends on your situation.
  • Establish clear objectives for the first version of your product and build towards that. Otherwise, you'll waste money on superfluous development.
  • Outsource development overseas, ideally with a peer-recommended firm
  • Provide clear and complete guidance to engineers with every request to minimize cycles. Further, know how you want your product to look and function--the user flow, the precise interactions, the design, even the typography. I saved lots of cash by delivering detailed product designs/mockups, such that it just became a matter of implementation
  • Use Squarespace to build your .com. They have all the trendy templates...easily customizable.

In10city Nation Owner, In10city Pte Ltd

May 24th, 2015

First is your level of Confidence you have on the mission you have embarked on. If you think that you will surely cross the bridge, then I suggest you start working on how you plan to render your business. Its like asking yourself "Now the product or service is ready... what next ?"...  This will help you plan the monetization part, which most startups get stuck or lose out.   You may feel that you may not run out of funds now, But as you keep draining funds each month, there may be a stage where you will fall short of funds when you need the most.  But one another great suggestion I can offer and if you can do, is to support the startup with another traditional business that brings in some regular income to support your startup without you having to use your saving.  This could be just a sandwich / ice cream stall or a training center where you can invite young fresh minds get project experience.