As an entrepreneur you should know how to do something on the sniff of an oily rag.
I’m a frugal guy too and I thought it might be interesting to share with you some of the ways I keep costs down in a business. Here are some key points to bear in mind.
What is actually required versus necessary to run your business? When you make a milkshake you can put several different ingredients in it: milk, ice cream, flavouring, an egg or malt.
Those are sort of the required ingredients if you were selling milkshakes. But what is actually necessary? Milk and flavouring. The other parts are required to fulfill orders but not necessary to make sales. You can just say no to customer orders which don’t have those other ingredients and make money.
Focus on the core. Figuring out what is necessary is also crucial for your wider business as it clarifies what is actually important and where you need to focus most of your efforts to becoming a better business.
Start with nothing. Whenever we have a project, I always start from assuming we need nothing extra to start it. You actually have all the resources you need to start. What tends to happen is that my crew in the project find a way that is usually more efficient and delivers a simpler and better outcome without the extra resources. The extra resourced model was actually bloated.
How can you do what you need to do without spending $1 but still deliver a great product? That is the kind of question I believe a great company asks itself all its life. Adding more resources to the core of a great product is like giving sugar to my 19 month toddler, she just takes off!
Insource. Outsourcing is a great concept but early on you are time rich and cash poor. Key areas to save money:
- Accounting: Crunch the numbers yourself. It might kill you, but it will teach you how your business runs and where the money is actually going.
- Legal: Usually start-up legal matters are small and can be found online or solved by buying a template.
- Finance: Use a credit card, take a loan or borrow some money from someone, business loans are usually around 3-4% more expensive than personal loans.
Fixed costs bleed businesses. Businesses don’t tend to die from one almighty cost, its more little cuts from a whole lot of different places.
These little cuts will bleed you dry. I always keep mine to a minimum:
- Office: Start from home and meet at the client’s office, all you need now is a nice suit!
- Land line: Just use a mobile, no one cares anymore, everyone does business on their mobile. It gives the appearance of being more accessible.
- Leasing office equipment: Start on your laptop or home computer. Make do with the technology you have until you hit a certain milestone, then upgrade to something more productive and faster. Buy second hand if you can!
- Insurance: You don’t have anything to insure! Minimise it and don’t let the insurance salesman talk you into anything.
- Cleaning: Clean the dishes as you use them and try and keep things tidy. Use a cleaner if you need to for the desks and office once per fortnight instead of weekly.
- Stationery: Attend enough tradeshows and events and you will have a lifetime of pens and other stationery. Use digital documents, it saves cost and saves you going away and typing up your notes.
Technology. When you build a bonfire you start by laying the kindling and slowly build up to adding big logs. Technology is like the big logs. You need a solid base of fire to make it work. I have always found early on that you don’t need that much technology: a spreadsheet can pretty much replicate any system. Wait and delay until you can buy the technology and increase the revenue you are earning or scale up from it.
- Test first with the free version: Make do with a free version for now. If it works, consider purchasing. Trial before you buy, the box usually lies with software.
- Open source software: Not matter how much people like to talk down open source software it kicks the pants off most commercial applications. The reason is because the features that are being built with open source software are the ones that the users want and not the ones that a software developer knows they can make the most money from.
Align yourself to open source and you will benefit quickly. Long term you will usually build your own, so there is no need to buy software.
Sell it before you make it. Of all the things I learnt from the spammy internet marketers with their one-page long yellow background scrolling pages was this: Market and sell your product so that you have the money in the bank before producing anything.
Just set a long lead time for delivery. This way you can test your market and make sure there is a market before investing large sums of capital into production.
Production doesn’t make you any money, it costs you money! Having stock sitting on your house floor doesn’t make you money. You only make money when you fulfill a sale.
Get the sales first and the costs of production can be funded out of the customers money and you don’t need to go chasing after payments once you have delivered the product.
Always be frugal. Save a dollar wherever you can:
- Use a voucher
- Buy on sale
- Delay a purchase and buy in bulk
- Buy second-hand
- Accept donations – closing down or moving businesses need to get rid of their stuff.
Any time an office moves they always want to junk stuff, holding onto desks and chairs just costs them storage fees.
You can pick up a whole office from closing down or moving businesses from Gumtree. Sure the desks and chairs might not match, but no one “who matters“ is going to see them anyway.
Delay. Delaying purchases makes you more creative. If you simply say, let’s put that off for one month and figure out a way to do it without any money you will be amazed at what you come up with.
Humans are creative when they are put under duress. That is why when all hell breaks loose with climate change you will see the most amazing innovations flourish.
By delaying your purchase you will really consider your project deeper, do more research and usually find a simpler and better way of doing it. Delaying brings clarity to your project and saves you money at the same time.
So how do you keep costs down in your start-up?