5 Ways to Cut Costs in Your Startup

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One of the biggest challenges to startups is cost. Generally there is plenty of talent interested in taking a risk for a big payout and usually there is a decent customer pool waiting to try out what you have to offer. With major obstacles like this out of the way, cost becomes the elephant in the room. Overspending leads to many startup failures making resource allocation and incredibly important factor to your startup.

Here are some tips that can help your startup reduce its costs and manage money frugally.

Don’t Spend Too Much on Your MVP

If you own a startup, chances are you’ve read “The Lean Startup” by Eric Ries. Therefore you probably know what “MVP” stands for. For those of you who have not read the book, read it. Also for those of you who have read it, “MVP” stands for Minimum Viable Product. It is essentially a working prototype.

Regardless of what your end product is, there is no need to put insane amounts of development time into it. For example, software companies are recommended to ship a minimum viable software product to a beta group or customers. It may not have all the bells and whistles or the incredible aesthetics of a finished product, but the MVP serves an important purpose.

The purpose of a MVP is to learn from it. You’ll learn how your customers interact with your software or product. You’ll be able to learn their challenges and wants. From there you can put money towards future iterations of the product. If you unloaded all of your resources into the first product offering and learned that the path you chose was completely against what customers wanted, you’d have a difficult time developing a new iteration.

Hire Contractors

One of the largest costs for a startup and any other business, is payroll. Good talent is not cheap. Full-time employees expect full-time benefits. However, there are thousands if not millions of qualified professionals that you can hire on a contract basis. All forms of professions work on a freelance basis.

Using sites such as oDesk or Freelancer will connect you with graphic artists, front end programmers, back end programmers, marketers, researchers, copywriters, photographers, receptionists, and more. Using contractors will allow you to have key tasks done at a much lower cost. For example, a software company may want in-house developers but hire contract marketers to manage their pay-per-click campaigns.

Shared Office Space

Along with payroll, office space is one of the highest costs that any business will have. Most startup companies are located near a major metropolitan area such as San Francisco, Boston, Austin, New York, and Chicago. Therefore the office space is not cheap.

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One of the ways that startups can avoid these costs, without working in a garage, is to rent out shared office space. Many of these types of offices afford you all of the convenience of your own office with a lower cost. Other small, like-minded companies are located in the same building or office and often share a conference room with you.

Not only do these types of office spaces save your company money, but often times you can work with the other companies in the building and benefit from one another’s expertise.

Alternative Forms of Salary

Another way to address the costs of payroll is to offer alternative incentive to salaries. For example, if the in-house programmer you want has a demanding salary, you can offer a lower salary but with the equity in the company. For an individual who believes in the startup and wants it to success, equity in the company can often be a more enticing offer to begin with.

Early founders and employees of companies such as Facebook and Google are reaping the benefits from having equity in the company, versus just having a moderately higher salary in the beginning.

Don’t Buy Unnecessary Tech

With all of the free technology out there today, you might find yourself wondering if you actually need certain services. For example, if your startup doesn’t do journalism style writing or intensive spreadsheet work, you may not need Microsoft Office Suites. Free services such as Google Docs and Google Sheets offer the same base service free of charge.

If you need video conferencing but won’t be using it very often, consider using a software solution that works together with hardware systems that your business partners might be using. There are free services such as Skype but they will not work well for business communication.

In short, always consider the cost versus the benefit of a particular service and how much you will utilize it.

About the Author

Andrew Fujii is a marketing professional with expertise in digital/web and content marketing. He is also a copywriter for multiple agencies producing copy for blogs, articles, websites, product packaging, mobile apps, and more.

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Photo credit: Sebastiaan ter Burg / Tobias Mikkelsen

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