Stretching Startup Dollars

One of the most impressive young entrepreneurs in the state of Utah shared with me this week some of the ways he has cut corners and cut costs to preserve his cash. I was super impressed. I don’t know how you teach this, but entrepreneurs who have instincts and smarts about cash preservation combined with creativity and operational skills will succeed big.

My friend had a bunch of old, mostly orange and green chairs. I jokingly asked him if they cost him $10 a piece. He said, “less. Actually we bought 20 desks for $500 and got all these chairs for free.” A marketing company was selling its fixed assets and they furnished their several thousand square feet of office space for almost nothing.

His office space is close to the railroad tracks–“the closer you are to the tracks, the lower your rent” he says–and he pays only $0.39 per sq ft per month — about 1/3 of what everyone else I know is paying. The space was actually quite decent.

He pays $1,000 per month for a billboard to recruit potential web developers. That seems like a lot of money, but compared to the $23,000 he spent employing one developer who wrote poor code — none of it could be used — the $1,000 per month to improve his talent pool is a great investment.

He sends out tons of direct mail. He calculated that it would be cheaper to use a one-window envelope with the mailing address printed on the letter inside than a two-window letter. But rather than pre-printing his envelopes with his logo, he found it far cheaper to buy an envelope printer and print his return address. He got a $4,500 envelope printer on eBay for $500. He saves hundreds or thousands of pennies everyday the way he does his direct mail. That adds up to hundreds or thousands of dollars a year.

He found a source for ink toner where he pays $10 for recycled instead of $200 for a new toner cartridge.

Once he wanted to use a photo of a well-known person for an advertising campaign. The person’s agent wanted about $2,000 per month. But my friend found a stock photo of the same person on rubberball.com for $59.00 — a one-time fee for unlimited use.

This is the kind of entrepreneur that investors love because none of their cash goes into luxurious office space, or high salaries, or a “we’ve got it made” attitude.

I wish I had the money saving instincts that my friend has. My primary money-saving virtue is that I hate taking money out of startup companies in the form of board fees or salaries. In my first startup 15 years ago my partner and I took $18,000 salaries for a very long time. And more recently I’m saving big on development costs by using open source wherever possible.

CEOs who can figure out how to get by with very low expenses will find their equity value will increase significantly faster and their harvest will be much, much greater.

What money-saving tactics have you found most helpful in your own startup company? What is the best cost-saving measure you’ve ever taken? Please share your comments.

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6 Comments

  1. I created a lead generation and publicity company using a virtual business model. instead of having the ‘cool’ loft offices that are common around Chicago, my emloyees and I use technology to reduce costs. We make use of VoIP systems in our home offices. We hold meetings using NSNet Meeting. We use the meeting rooms within our respective local libraries for free wireless connectivity to their internet and email servers. We all use laptop computers and cell phones that allow us to fax, email, and video conference from anywhere.

    We have clients that are local, national and as as far away as Italy using this model and all of them are impressed that their fees are invested in talent instead of paying for opulent offices.

  2. Paul, Our business lives by how cheaply we can obtain resources. Our office is in the industrial park between a roofer and a plumber. It is actually the front office of a carpenter. Not only is it cheap rent but also all the utilities are included and it is month to month with no long-term lease. The way we got the office was to look for someone with a long-term lease that was no longer using the space, but still paying. We offered them three months in advance at a price lower than their current lease payment and said we wanted to be month to month after that. They took it and still subsidize our lease.

    We outfitted our entire office at garage sales and DI spending only about $300 for 3 desks, a conference table, 12 chairs, filing cabinet, and shelves. None of it matches, but who cares. We actually got the conference table and chairs for free.

    We buy computers used as well at usually 1/2 of retail. In our software development we have leveraged 8 OpenSource projects worth millions at no cost. When we want an enhancement to an OpenSource project we have found a small donation to the project with the promise to donate an equal amount if the features we need are added goes a long ways. Also if you get the developers excited by showing them how you are going to use their software they get excited and develop things for you for free. Likewise we incur no overhead for the development and we sometimes get several programmers adding the features we need in record time. They of course know the source code intimately and can make the changes without any ramp up time.

    We deal internationally with over 50 countries and we have had all our contacts join Skype so we call internationally for free on our computers. I teach as an adjunct professor in entrepreneurship at the U two nights a week so I can also purchase software at a faculty discount. We also employ talent in several different countries to do various outsourced jobs for us at about 1/5 the labor costs of here in the U.S.

    We set 20% of or stock aside in an employee stock option plan and have encouraged our management team that if they could get by on as little salary as possible while we use investor?s dollars then they could get a portion vested over time from the ESOP. They don’t take full salaries until we hit profitability.

    We have found that in our offerings if we can give away something significant for free we get a lot of good will marketing and word of mouth presence. We try to get unpaid advocates of our systems pushing them to their peers for free.

  3. My wife and I share the responsibility of caring for a handicapped man whose parents pay us $2000/month and give us a condo to live in. It’s certainly not a traditional way to cut costs, but I was able to go nearly a year without taking a paycheck because of it. All I have to do is get our friend off to work in the morning and get him ready for bed at night. There are lots of opportunties like this for entrepreneurs who need an alternate form of income while they get their companies started. Just call your local assisted living service provider. It’s not a glamorous living, but anyone who’s too good to get his/hr hands dirty in order to build his/her company probably doean’t have what it takes anyway.

  4. I run several websites. Some of them require more bandwidth than many of the local ISP’s have in total. I have a friend that owns a small ISP. He hooked me up with 100Mbit/second dedicated hosting in trade for my web marketing services.

    I recently purchased a small duplex in Salt Lake City. My wife and I live in one side, and rent out the other. The rental income pays for more than half our mortgage. I use the second bedroom as a home office. When I need to conference with clients in person, I go to their office, meet them at a restaurant, or rent a conference room for an hour or two.

    The last time I boot-strapped a company, my partners and I found great office space at no cost. One of our clients had some space they weren’t utilizing. They let us use that space, and it gave us a great view of problems they encountered with their current software infrastructure that we could fix with our product.

  5. Marshall Burtcher

    I’ve been challenged by finances myself. To save my start-up some cash, my partner and I self-host our website off some unused hardware (we’re techs in our other life). I took the challenge of learning web development, linux and apache to configure the needed services for our company. This has paid off hansomely in predictability and effectiveness. Using Qwest for our ISP, we’re able to get the bandwidth needed to support our hit loads.

    Additionally, to reduce cost, we work carefully to optomize our marketing through testing batches and comparing results in Click-thrus, conversions to trials, and conversions to sales.

    Anyhow, I enjoy the task of minimizing our overhead while stream-lining quality and productivity. It’s a great challenge.

  6. Dan Masterson

    I think the best way to save money in today’s world is to be virtual. I am involved in two companies presently and our goal in both is to have as few fulltime employees as possible and no office space ever. The one company has no fulltime employees. The seond has two part-time employees. Neithercompany has any office space other than the homes people work from. And if I told you where we run our 10,000+ member website and the other site that receives over 350,000 unique visitors a month from you wouldn’t believe me 🙂

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