Cost Reduction · Costs

What are the possible cost reduction methods for startups?

Mert Doganli Founder of Novosim.com

May 29th, 2020

I have been using various different methods to reduce the operational / fixed costs during the hard times or in the beginning such as;

- Making use of sharing economy as much as possible- vehicle sharing, office sharing, internet sharing (whenever possible)

- In case if the business does not require constant customer and field visits, we collect the meetings to 1-2 days of the week and rent a car to make the visits. Generally, the insurance prices and operational costs are very high for company cars.


David M

May 30th, 2020

Happy to offer ideas if you explain more about the type of business you are in. There are basic cost reduction elements that any one can mention or regurgitate from some book they read. The creative cost reductions will likely only be discovered with more detail on your business.

Anonymous

May 29th, 2020

Meetings for starters, are one of most expensive, costly attributes to companies.. either through time or operational cost. Unless the meetings are various location, I would limit them to one day a week.. Take advantage of email meetings/communications.


vehicle sharing, I presume none of the real leaders have personal vehicles? If so can be allocated to business use for specific day or time of the time. Unless you live in non densified neighborhood, would highly recommend bicycle and scooter use.

Dane Madsen Organizational and Operational Strategy Consultant

June 1st, 2020

You should always approach running a startup as if there are "hard times", especially if you are investor supported. Often success is driven off being "poor" so you have to be smart. Lots of cash makes you stupid.


Every expense needs to be balanced off a scale of "is this more important, or is rent"?

Gaurav Need a BDM for ASEAN Market

June 1st, 2020

Hi Mert,


There is no one solution fit for all. Anyone who will tell you about the ways of cutting cost first needs to understand your business top to bottom.

Mert Doganli Founder of Novosim.com

June 2nd, 2020

In my case, it is a B2B with mid to high tech machines (automation systems for logistics, testing systems for automotive industry etc). As Dane Madsen mentioned, we experienced "hard times" when our 2 big customers from different industries stopped purchasing equipment at almost the same time.

So, we had to go through lay-offs, trying to find ways to pay the credits back etc.

We were growing on customer money and did not seek investment. Only after 1.5-2 years, we could get back on our feet and during this time, I have been doing a lot of thinking about how it would be possible to increase revenue / people.

For example, I have re-freshened my coding skills and taken on some responsibility for code development. I am really not sure if this is strategically a correct way of thinking, but when you need to play defense, you should have some artifacts to recover for the people who leaves the company.

So I think, from day 1 , there may be some strategies to follow to be able to increase efficiency of the company and stay "lean".

Another example I can think of is equipment stock. In case if you are developing a hardware, it would be best to rent (borrow as consignee) and try to purchase only the items that you can resell if design modification is required.

Also, another important topic that I followed was to make the purchases in an order to minimize the idle time of the product before assembly. This is a complicated issue when you are building custom machinery.


David M

June 4th, 2020

Mert, You might consider how you can create a service division. Service will have low overhead...it allows you to reduce capital expenditures. From a marketing standpoint, it allows you to keep your name out there and possibly even increase brand awareness. If you can do this, consider setting up up as a separate business unit under your current one, or possibly even separate depending on various financial and legal elements.

Paul Garcia marketing exec & business advisor

June 7th, 2020

Remember that you can't cut your way to profitability. While efficiency is a core business skill, it is not typically what makes a business a success. The usual way to make smart adjustments is to look at your financial statement. Look at everything in the expense category. Consider first what its effect on your ability to conduct business is, then consider other methods of fulfilling this requirement. Knowing when to spend money is combined with knowing what to spend money on. Some things may not seem "essential" but they do affect your customer experience. Having an answering service with a live person to answer calls 24/7 for $75/mo might seem like a good customer experience, but is it really what customers expect? Would you be just as successful using the auto-attendant that comes with your business voice lines and costs $0 extra? Do your customers expect you to print in color, or is B&W printing just as effective (half the cost on toner).


To use a specific example, is your field visit essential at all? Are there more things you could do remotely with equal benefit to customers? Is it more cost effective to reimburse mileage for personal vehicles or to rent a vehicle for the day? Are field visits happening at the right time? Are there components that could be split out from the field visit that don't need to be handled in-person so the field visit requirement is less frequent.


Again, you can't cut your way to profitability. It doesn't mean you shouldn't be smart with every dollar. Don't spend more time trying to figure something out than it costs to do the thing. Your time has a dollar figure attached to it.


This month I found a Salesforce.com plug-in that saves me about 3-4 hours a month. The monthly cost of the plug-in is about 1/4 what it costs for that amount of my time. But if I'm not doing something better with my recovered time, then I'm not really gaining efficiency.