“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.
The 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.
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.)
Sometimes it is impossible to get sales unless you spend money. I guess it’s all a catch 22.
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!
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.
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”.
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
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.
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.
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.
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.
Love the input from proven investors. They tend to call a spade a spade when giving financial and startup advice.
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Simple, straightforward and focused (often the challenge for an entrepreneur). Thanks for the insight we can share with our followers.
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.
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.
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
thanks! I’ll be bookmarking this.
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!
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!
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!
Great article. You cannot grow a business in the same way you grow a genetically modified chicken
We started out in 2003 and I think we made every mistake in the book. Luckily we quickly saw and corrected our errors. I think this is one of best and most concise list for anyone starting up and how to be successful
It doesn’t matter how much money you spend if you don’t spend it on the important things. Track your expenses and analyze the effects of your spending. Spending money one way might generate more revenue than spending them in a different way.
IMO, start up is the most exciting stage of any business’ life span. It’s new and it has the potential. These points are well put together in your article. Thank you!
Excellent thoughts here, thank you for sharing. 100% agree with being “human” as a start-up. You most likely won’t compete with big corporations off the bat so use your advantages to differentiate yourself. Quicker timeframes, agility, flexibility. Treat your clients like a watermelon while others will treat the client like a grape, as Mark Cuban would say.
The road is littered with failed incubated firms that either failed hard or got scooped up at the brink of closing only to be diced up for IP and a few key people. Our market research industry is not immune to this phenomenon either. Especially as we see more available sources of capital wanting to invest in tech plays that intersect. I think that having a product is important. Clear differentiation – Brilliant Marketing – and of course Outstanding and Consistent Delivery & Customer Service is Key. You need a principle-driven culture. One that believes that you’re not just selling out but that you are actually trying to improve the world around you each day you engage with those that place their trust in you.