How to Stay Lean as a Start-up
One of the most critical problems an entrepreneur can encounter is a lack of funding. Running out of money at a pivotal point can ruin a budding company and prevent success. All of the entrepreneurs we interview stress the importance of staying lean as a start-up. Here are some of the highlights of what they had to say.
- Don’t outsource too much: It’s important to find a balance between trying to do to much on your own and delegating to much. The biggest problem with outsourcing a lot is that you as the entrepreneur end up losing control of your company, and when that happens you also lose control of your cash flow and expenses can get out of control.
- Start your budget at zero. It’s been proven that people tend to stick close to their initial budget. If your budget starts at zero it’s much more difficult to let your expenses get out of hand then if you start it at a large amount.
- Negotiate for everything. Figure out what you can do for another business and offer your services in return for theirs. There’s no need for cash to be involved in every transaction. If both you and your counterpart have something to offer, to a trade and save your hard-earned money.
- Don’t pay for advertising. Don’t fall for advertising firms and their promises. If your product or service is any good, word will spread organically. Paying for advertising as a young startup can suck all the life out of your budget and cripple your growth. Rather, spend your time investing in your customers, offering great customer service is one of the best ways of advertising.
- Only spend money to make money. Unless you have a plan for how money you spend is going to make you money in the future, it won’t. You’ve got to be able to see the path your money is going to take and how your investments will come back in the form of revenue.
- Find team members who understand start-ups. Obviously a start up is not cash-flow positive at the beginning, but with proper execution it will be. Find team members who understand this model and are willing to work for future profits, and who won’t demand a salary from the start. Many startups take 3-4 years to become positive and you’ve got to stay lean until then (and even after positive revenue)
- Look at expenses as investments. Are your expenses all necessities?, why are they there? Where does the money your spending lead you? Is it helping your business grow or become better?
It takes time to build your business. Activision took three years to become positive, Pandora took five. If those companies had been shelling out cash during those long years they would have failed. It’s very important to remain lean, and by following a few simple principles it doesn’t have to be difficult.