Startup costs have never been lower.
Despite this, the majority of startups are still operating on a shoestring budget, whether out of necessity or in order to reduce risk. The task isn’t an impossible one, but there are challenges.
Above all, careful planning is needed in order to operate on a startup budget. This is especially true in the early stages of a startup.
Unfortunately, many startups tend to overlook a lot of the meticulous number crunching that is needed in order for a startup to survive. This is true for a surprising number of businesses. A lack of planning, however, can quickly jeopardize the state of your startup.
A CB Insights survey of over 100 startups found that the second leading reason why startups failed (almost 30%) was because they ran out of money.
While every startup is different, this blog post will take a look at how to set up your business on a shoestring budget.
A Business Plan: The Foundation
When it comes to being able to operate on a shoestring budget, you first need to have an idea of your expenses. A business plan provides the necessary framework for thinking about such details.
While every business is different, there are some common expenses to all startups, regardless of whether you’re an online business or a traditional brick-and-mortar one. These include:
- Research Expenses
- Insurance, License and Permit Fees
- Equipment and Supplies
- Borrowing Costs
- Employee Costs
- Technological Expenses
- Unexpected Costs
Once you have a basic idea of the costs involved, you can approach each one strategically. Here are some tips:
1. The Right Mindset
When it comes to setting up a startup on a shoestring business, here are a couple of key things in mind. The first is that you should avoid spending a single dollar if that particular item will not allow you to acquire more customers or at least allow you to deliver better customer service.
A sense of resourcefulness and creativity when it comes to spending will also serve you well.
2. Use Your Own Equipment – Never Buy New
When it comes to setting up your startup on a shoestring budget, your overhead costs should be kept as low as possible.
One way to do this to use your own equipment, like your cell phone, computer and so on. These can be converted from personal to business assets and, in the process, become tax deductible.
Above all, never buy equipment new. Most equipment you need can be purchased second hand. Your banker may also know of other businesses that have gone under and are in the process of liquidating.
Also, keep in mind that there are leases available for just about everything you might need to set up your business. This is also something to look into.
3. Rely on Freelancers and Contractors
Employees are the backbone of any company, but for a startup on a shoestring budget, hiring freelancers/contractors is the best option when it comes to keeping costs low.
Not only are they low cost, but they can supplement your business in any number of ways, from virtual assistants who take care of payroll and other administrative tasks to freelance writers, web designers, logo designers and so on.
You can find them on sites like Upwork.
Another alternative is to hire interns.
4. Master the Art of Negotiation
In business, negotiation is an important skill – especially when it comes to making purchases.
When it comes to buying various supplies from vendors and suppliers, always try to negotiate and to reduce costs as much as possible.
Consider asking for discounts with B2B services; in exchange, you can promise to do business with them in the future.
5. Advertising/Marketing on A Shoestring Budget
Advertising and marketing are important for a startup. Unfortunately, both come at a cost.
For a startup, content marketing offers one of the best returns on investment. While paid search has been touted as the most cost effective option, a recent study found that content marketing generated three more leads for every dollar spent.
Many businesses tend to opt for PPC campaigns, but the problem with this is that they continually require to invest money into them – they also aren’t as effective.
A website/blog, however, allows startups to build traffic without having to continually invest money.
Next to this, there is a wealth of information out there about how to market your startup on a shoestring budget, but here are some additional ideas:
- Optimize Your Google My Business Listing. This is completely free and allows local businesses to be found on search. We’ve written about how to optimize your Google My Business listing here.
- Use a Referral System. This is a growth hack that worked great for Dropbox and many other companies out there. Dropbox, for example, is now worth over 10 billion dollars.
Dropbox’s referral program was based on the idea that every time you referred Dropbox to a friend, you got an increase in storage.
Those incentives increased as you referred more people. Dropbox also posted their “Refer a Friend” message everywhere they could.
6. Technology On A Shoestring Budget
Technology is another unavoidable expense.
7. Office Space On A Shoestring Budget
One of the biggest expenses for any new business is office space. For businesses who conduct their business online, a great way to eliminate this cost – at least for a period of time – is to conduct business from home.
When it comes to conducting meetings or having clients over, Regus provides economical virtual offices, meeting rooms and even entire office spaces worldwide. Their office spaces are fully furnished and IT-enabled.
8. Focus on Getting the Right Customers
Getting your first 20 customers is an important step, but it’s also about getting the right customers as well.
Here’s what we mean by that:
When Yocale was in its early days, we focused on getting clients who were well-known in their particular industries. For us personally, that meant getting our software in the hands of the most famous hair stylist in Vancouver. This was the first step.
We went out of our way to land this particular client; the reason why we did was because it meant that the client could become a powerful referral if we did things right. We ended up getting a lot of recognition and, of course, a lot of business. This client also went on to become an investor in our company.
Of course, we had to do a lot more than simply get our product in this client’s hands. We worked hard to solve a particular problem that he didn’t have time to solve. By doing so, we were able to help this top client grow their customer base.
9. Create Additional Revenue Streams
In the beginning, cash flow can be slow – especially for SaaS startups. To help keep your business afloat, it can be a good idea to offer additional services so that you are not only relying on a single revenue stream.
The key, however, is to ensure that the services are actually valuable to your particular customer base. Take a look at the customers/businesses you’re already working with and figure out how you can provide a service that could compliment what you’re already providing.
That’s exactly what our team at Yocale did in the early days. We branched out to marketing and SEO services.
The Bottom Line
Setting a startup on a shoestring budget is not an impossible task, but it has its challenges.
Once you have your business plan, the next step is to get in the right mindset: focusing on only the absolute essentials – that is, the costs that will allow you to increase your customer base and/or improve your level of service.
Lastly, not only do you want to drive down overhead costs, but it’s also important to think about your cash flow and driving additional revenue streams as well.
Yocale is the top scheduling software on the market today – it’s also free to get started. We also offer a free suite of business management and marketing tools. For more information, click here.