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Startup Financial Tips From Mark Cuban and 4 Other Entrepreneurs

Financial ManagementSeptember 27, 2009By Anita Campbell

“You’re not spending enough money.”

That is what the corporate honchos told me in my previous startup, which was an intrapreneurial startup inside a large corporation.  That was in the midst of the Dotcom era, when everything online was about getting eyeballs. We had equity partners and a well-funded corporate parent, bringing 7 figures of investment to the table. The emphasis was on growth … fast growth.

Startups should squeeze nickelsThe feedback was that I was being too conservative with money and needed to grow the business faster.

So … I spent more.  The money flowed like beer at a frat party.  We hired people right and left – even though we didn’t have time to orient them and put their talents to good use.  We sponsored events and went to tradeshows – even though our time would have been better spent on making individual sales calls, rather than the distractions of picking out tradeshow booths.  We spent oodles of money and, worse, time commissioning swag and marketing materials and advertising creative – even though we had little revenue coming in.

In the end it didn’t help the business.  While speed is important, a startup paradoxically also needs time — time to iterate on product development, time to get the team aligned with the business vision, and time to focus on closing sales.

Startups are like babies – you can’t force babies to grow up faster just by throwing money at them.

Fast forward to my current business.  I bootstrapped it with my savings and by consulting on the side.  That means it has grown slo-o-o-owly.  But I wouldn’t have done it any other way.  In the beginning I had to earn every dollar personally with the sweat of my brow before I could plow it back into the business.  That in turn caused me to focus on whether I REALLY needed to spend money.

Of every expenditure, I would ask myself:  “how many hours would I have to work to pay for this expense?”  That one question brings clarity.

And the following is what I have learned about spending – and saving money – in the startup years.  I looked at some highly successful and well-known entrepreneurs for inspiration and came up with five rules for companies in the first 3 years of their existence:

(1)   Be picky.  In the words of Evan Williams, a founder of Blogger and Twitter, startups have to be willing to say no –  no to partnerships and unnecessary product features and the wrong employees.  More wasted money and time comes from going in too many directions than from focusing.

(2)   Act like a little company.  According to Jason Cohen, founder of Smart Bear Software, who are you kidding by trying to look and sound like a big corporation? As a startup, you’re a little company going after early adopters. Be human.  Instead of the snazziest website possible, have a more informal website or blog.  Ditch the marketing speak.  Not only will you communicate better, but you will save a lot of money on all that fancy design, and you’ll save time wordsmithing all that marketing speak.

(3)   Watch every penny.  This advice from Michael Arrington of Techcrunch may seem obvious.  But in a young company you need to turn “watch every penny” into an art form. First principle: operate in Spartan surroundings.  I would add this:  become a do-it-yourselfer.  Be prepared to spend your weekends and evenings working on tasks – marketing and a little light technology work such as updating your website — that later on you’ll delegate.  You will save money.  And you’ll learn these tasks from the inside out, and be able to better judge whether you’re getting good value from service providers in the future when you can afford them.  Also, use accounting software religiously.  When you track your numbers closely, cost containment becomes woven into your business DNA.

(4)   Seek out discounts.  Not only should you watch every penny – but squeeze those nickels for more.  According to Jason Calacanis, go to each of your vendors every 6 to 9 months and ask for discounts. I would add: get used to searching for online discount codes, buying in bulk where it makes sense, and paying the annual rate to save 15% versus a monthly rate.  Be on the lookout for rewards from credit cards and charge cards that help you save even more.

(5)   “Sales cures all.”  Those are the words of Mark Cuban, as one of his startup rules.  And I couldn’t agree more.  Start selling and bringing money IN the door as fast as possible, rather than worrying about expensive surroundings or tradeshows which are all about money going OUT the door.  Track your time to see how many hours in the day you spend working on sales, versus activities that are expense-oriented. Make adjustments. Get your priorities straight.

Now, I realize some of this may sound anti-marketing.  Trust me, it’s not.  I am a big proponent of paying for good marketing — for a business that can afford it.  But first things first. Be ruthlessly stingy on marketing expenditures and every other kind of expenditure in the beginning.

The good fiscal habits you practice in the startup phase tend to stay with you as the business grows.  You’re much more likely to remain on a solid financial footing throughout your business’s life cycle.

What do you think?  What tips would you add?

This article was previously published at the OPEN Forum under the title:  5 Financial Rules for Startups (Hint: Be More Like Mark Cuban), and is republished here with permission.

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171 Responses to “Startup Financial Tips From Mark Cuban and 4 Other Entrepreneurs”

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  1. Dennis says:
    September 27, 2009 at 6:05 pm

    You mention the ‘baby’ analogy and it is apt. Your business model is the baby and it should be nurtured and ‘iterated’. It is maybe not another tip, but one should be proactive in constantly reviewing and finetuning the model or risk charging down a parth that seemd like a good idea at the time.

    We capped our growth because we don’t want to emply people so growth come thru alliances and through online platforms which can be leveraged without adding overhead. (With every person added to the payroll, you decrease overall productivity.)

  2. Carl says:
    September 27, 2009 at 7:04 pm

    Sometimes it is impossible to get sales unless you spend money. I guess it’s all a catch 22.

  3. Levi says:
    September 27, 2009 at 8:05 pm

    Amazing, real advice for the entrepreneur! It’s amazing what my company learned this year once the economy started to take a turn for the worst. Coffee seemed like a wasted expense. Pinching penny’s won’t make or break your company financially but it will send the right message: cash is king.

    Great blog Anita!

  4. Anita Campbell says:
    September 28, 2009 at 12:49 am

    Dennis, You make a great point about hiring people. On the surface it is easy to assume that just hiring more people will solve one’s growth problems. In reality, it doesn’t work that way. It is difficult for most small companies to “digest” new people if they are brought on too quickly.

    Anita

  5. Gaines says:
    September 28, 2009 at 1:08 am

    I just launched my business about a month ago, and I am taking things real slow right now to establish “street-cred”. I found that in starting my business, I could keep my costs down by utilizing free software packages, finding a decent computer that was a discontinued model, and by networking at free or low cost events. The key to my growth right now is relying on an established network of friends and professionals, as well as managing my time efficiently. I also spend good time writing my blog and updating my LinkedIn and Facebook profiles to keep my name on peoples’ minds. But when you are doing updates, make sure that they are pertinent to your audience, and not just a 10 word “tweet”.

  6. Bootstrapper Handbook for Start Ups says:
    September 28, 2009 at 1:56 am

    Anita, I love your tips. These are so true. We can’t just have our start ups grow in just a snap of a finger and viola, it’s all grown up like big corporations are. Definitely suits me very much as I am trying to bootstrap my own business too.

    - Bianca Aquino
    Bootstrapper Handbook for Start Ups

  7. SEO Consultant says:
    September 28, 2009 at 9:28 am

    There is nothing like picking up the phone and making sales calls.

  8. Amanda Collier Stillwagon says:
    September 28, 2009 at 10:03 am

    Good points. Growth too quickly isn’t always a sign that the business will be around for the long haul. It takes time but overall it’s basically a balancing act.

  9. Robert Brady says:
    September 28, 2009 at 1:43 pm

    While Mark Cuban may be a loud-mouthed jerk sometimes, he is a very sharp businessman and hits the nail on the head. Asking how your actions increase sales is a great way to judge where those actions should be on your priority list.

  10. Clf says:
    September 28, 2009 at 6:40 pm

    Yes – advertising HAS to be spent for sure, so if the advice is to SPEND SPEND SPEND, I would really focus on advertising and ROI reports.

    Even if the product(s) or service(s) need tweaking, you need the RIGHT eyeballs to see the pitch.

  11. Sophie says:
    September 29, 2009 at 5:07 am

    My tip is to hunt around for free options, there are more and more of them out there. For example when I first set up my small business I used a CRM system which was a huge drain on expenses as I knew I needed CRM. After watching this money flow out for over a year I started to hunt around for other CRM systems and found a few that are free, and I started making my savings! There are various free CRM systems now, personally I use Glasscubes (www.glasscubes.com), which doesn’t have all the bells and whistles of the one we were paying for before, but it does everything I really need and costs nothing.

  12. Mike Rowan says:
    September 29, 2009 at 8:14 pm

    Hey there!

    Love the input from proven investors. They tend to call a spade a spade when giving financial and startup advice.

    As an aside,I enjoy reading your blog, and just wanted to let you know that we have launched a new financial article submission website for bloggers to get the word out about their sites. We have made this site dofollow to help with your search engine rankings, and would love to have you as part of our community.

    Please visit the site at http://www.investingtopix.com

    Thanks,

    Mike Rowan
    mike@investingtopix.com

  13. GilbertMelott|Nextvoice247 says:
    September 30, 2009 at 9:58 am

    Simple, straightforward and focused (often the challenge for an entrepreneur). Thanks for the insight we can share with our followers.

  14. Elizabeth says:
    September 30, 2009 at 10:21 am

    To build on Evan Williams’ great advice to “be picky,” define yourself clearly, in your business plan and in your own mind. Make sure that every sales connection counts by developing and communicating the identity of your company in ways that are immediate and easy to understand (as you said, free of the expensive “marketing speak”).
    Not only are you saying no to extraneous expenses and services, you are saying yes to a solid plan of action for your business and your prospective clients.

  15. Business Attorney says:
    September 30, 2009 at 7:23 pm

    These are great tips but I think the 5 tips can be succinctly reduced to two: (1) stay focused on your revenues and (2) spend wisely.

  16. lottiel1 says:
    October 1, 2009 at 4:04 pm

    Very good advice. Some start ups end up as real upstarts. They want to grow big too quickly and they handicap their operations by overtrading. This will also not do their reputations any good

  17. Lisa says:
    October 2, 2009 at 3:58 pm

    thanks! I’ll be bookmarking this.

    MissMentor

  18. Gini Dietrich says:
    October 5, 2009 at 12:09 pm

    We have been in business for four years and I’ve always run the company as if it were our first year. We recently had to let our external IT firm go and we’re in the process of interviewing and finding the right next firm. Our best guess is we’ll be without an IT professional for a month to six weeks. But I learned how to be the IT guy in our first year of business so it’s less stressful now. Think about what a big company would do without their IT team for a month or more!

  19. MJ Gottlieb says:
    October 18, 2009 at 11:36 am

    Most of the sharpest businessmen and women always seem to be the biggest misers in business which leads me to believe thery are on to something. I personally always spent too much and it led to nothing but drama. Iagree with Marc wholeheartedly!

  20. Pro2ProNetwork says:
    October 27, 2009 at 2:59 pm

    Really good for those that are starting or in the midst of owning a small business. I think the tips were really helpful because of the personal experience tied into them. Excellent job!

  21. lottiel1 says:
    October 27, 2009 at 5:48 pm

    Great article. You cannot grow a business in the same way you grow a genetically modified chicken

  22. 100 Must-Read Articles For Entrepreneurs | Sakib Mahmud Aka Internet Inspiration says:
    December 5, 2009 at 3:17 am

    [...] Startup Financial Tips from Mark Cuban and 4 Other Entrepreneurs: Get financial tips from other entrepreneurs. [...]

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  28. janet says:
    October 15, 2009 at 4:21 pm

    Thoughtful post Travis. I think what I’m seeing here, is an emphasis on having the right systems in place in order to have a sustainable business.

    Quickbooks online is an excellent tool, and yes a timesaver.

    This comment was originally posted on MarketingProfessor.com

  29. Travis Campbell says:
    October 15, 2009 at 4:23 pm

    Systems: yes indeed. And to understand that implementing systems is part of your role as an online entrepreneur who wants to build a sustainable business. It’s just part of the deal!

    This comment was originally posted on MarketingProfessor.com



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