10 Lessons Learned From Starting a Business on a Budget

My wife and I had an old computer connected to the Internet.

We paid $16 for two domain names, $40 for software, and $25 for a month of website hosting. With a total of $81 we had started an Internet publishing business. We created websites and monetized them with pay-per-click ads to start. Revenue started trickling in by the second week.

By the end of the first year, we were making a living after starting a business on a budget. By year five, we were netting six figures annually.

Sadly, at the end of a decade our website revenue had dropped 90 percent due to Google search algorithm changes, and we were scrambling for new ways to make money online. Here are some of the lessons we learned along the way:

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A Lack of Capital Is Not the Only Reason to Start Small

Although our income was low at the time and we were starting a business on a budget, we did have savings to invest. But we really didn’t want the risk. In any case, we had tried other small ventures, including being flea market vendors, and our experience taught us that when you start small you have no real worries or stress about losing your capital.

When you risk your life savings you’d better get it right the first time, but doing it our way you can fail a dozen times and just keep trying something else.

That’s a huge advantage to low-cost startups. Fortunately, there are many that require less than $5,000, and even dozens of businesses you can start for under $100.

Starting a business on a budget also forces you to be creative. For example, when you have money to spend, you might try traditional advertising, possibly with no bottom-line result. But when we looked for zero-cost ways to promote our websites, we discovered techniques that pushed hundreds of our pages to the top of Google’s search results, which led to fast growth in traffic and revenue.

Bootstrapping Works

A phone-line connection to the Internet is tediously slow, but that’s how we started. As soon as we had decent revenue, we got cable Internet, and the old computer was replaced. But the advantages of having started with what we had were clear.

It may seem trite to point out, but it’s also often forgotten that savings on expenses go straight to the bottom line. Spend $1,000 less and you have exactly $1,000 more profit (as long as your money-saving choices don’t hurt sales). That’s the immediate advantage of keeping expenses down.

Starting a business on a budget also teaches you how to effectively spend your money when it’s time to plow those profits back into the business. For example, having never once talked to anyone in the course of doing business, we realized we didn’t need a business phone line. And by the time we were making decent profits, we had a much better idea of what kind of software would be most useful to us.

This “ready, fire, aim” method can be pretty efficient at getting you to your target. Just start with what you have and reinvest profits as you learn where to put the money for best results.

Easy Can Be a Good Place to Start

We eventually monetized our websites in many ways, but we started with Google AdSense because it was easy. Just paste the code into the pages and collect 68 percent of what Google makes when visitors click on an ad — it doesn’t get easier than that. After several years and hundreds of thousands of dollars of automatic deposits into our bank account, we still had never spoken by phone or email to anyone at Google. It’s all automated.

There are good reasons to start with the easiest way to generate revenue, even if it isn’t going to be the most profitable way in the long run. First, it is a great motivator to see money coming in as quickly as possible. Second, it is that revenue that allows you to grow the business without risking additional capital. Third, who doesn’t like easy?

We eventually wrote and sold PDF e-books, earned affiliate commissions from recommending products, developed 10 different email newsletters and courses, sold banner advertising directly, and developed other revenue streams. Many online marketers find complex monetization models to be more profitable than Google AdSense. But I suspect we might have given up if we started by trying to implement the more-difficult revenue strategies.

Find Something That Works and Do It Again

Six months into it after starting a business on a budget, I discovered free-distribution article directories. When you post articles on these websites, you include a link or two back to your own website in the “about the author” section. Visitors can take the articles and use them on their own blogs or sites — as long as they leave the links active.

I posted a few articles and saw an immediate increase in traffic to our websites. Part of this was direct traffic from the directories, but the search engine optimization effect was a bigger advantage. Google and other search engines ranked our sites as more important because of all the incoming links. We suddenly had our pages all over the search results.

By the way, this is no longer an effective strategy, and Google may impose a penalty on your site for links from article directories. That change is perhaps a big part of our 90 percent drop in traffic in the last few years.

But while it worked, it worked really well, so I cranked out more than 1,000 articles in the next two years and posted them in at least 40 different article directories. Traffic surged. We’ll never fully understand the mysteries of Google’s search algorithm, but I think article directories were a big factor in our SEO success, and therefore in pushing our revenue past $10,000 per month.

When you find something that works, do it again . . . and again and again. Why spend money and time on new marketing methods until you fully take advantage of what’s already working?

Low-Cost Experiments Can Yield Big Profits

We tried many ways to generate traffic to our sites, including automated article-submission software and some paid advertising. We dropped most of them as ineffective after some time. But, because we invested only a few hundred dollars into each experiment, the profits from the successes easily outweighed the cost of the failures.

Zero-cost experiments are my favorite. For example, early on I played around with the sizes and locations of the AdSense ad-blocks on our pages to see if we could get more clicks. With careful monitoring over the period of a few weeks, I was able to find a format that increased the revenue-per-visitor by 30 percent. Those few hours of experimentation were worth tens of thousands of dollars in the coming years.

It was marketing guru Jay Abraham who inspired me to do many low-risk experiments. He particularly stresses doing experiments that have measurable results. For example, you might try coupons rather than radio advertising, since the effect of the latter is tough to determine, but counting coupons provides an easy measure of how many new customers your expenditure brought in.

Low Fixed Expenses Lower Your Risk

It may help to reduce any expenses, but keeping fixed expenses low is more important when you’re starting a business on a tight budget. Our business revenue varied by as much as 40 percent from month-to-month at first, but we stayed in the black continually after our first break-even month, because the bills we had to pay were minimal. In fact, while our expenses topped $2,000 in some months, we could cut that to $300 anytime we wanted.

You can travel for business (and enjoy it), spend half of your profits on advertising to grow your business, and do any number of things that are reversible, all without much risk. After all, you can cut these expenses when you need to. But an expensive lease and other high overhead expenses can drag you down fast if you have a slump in sales.

You Can Delegate Despite the Budget

Because of our focus on frugality and the fact that we were starting a business on a budget, it was tough to learn effective delegation. But you can pay for help, even when starting a business on a tight budget. We waited until our sixth year before hiring a writer to help us produce content for our websites — a big mistake. When we were doing well in the search engines, we could have doubled the size of our websites and doubled our income for a modest investment.

To avoid large expenditures or ongoing risk just look for the best of the low-cost options and avoid long-term contracts. For example, we tried five or six inexpensive writers, throwing away many of the articles we got until we worked our way up to a reasonably-priced ex-reporter who gave us exactly what we needed. We paid by the article, so it was easy to cut that expense when our sites fell out of favor with the search engines and revenue dropped.

Freelancer platforms like Elance.com can help. That’s where we found the writer. It’s also where we turned for inexpensive technical help, like the time we paid $50 for a crucial bit of Java code we needed to sell display ads on our sites. We’ve never hired an employee or signed a long term contract for anything in our business.

Three More Lessons

The following lessons are not necessarily about starting a business on a budget, but I consider them to be some of the most important things we learned from our Internet publishing business.

Do Something You Enjoy

Our websites were about whatever interested us. My wife writes in Spanish for literature and self-improvement niches. I had websites about backpacking, real estate, brainpower, weird ways to make money, and many other subjects. Fortunately, I have many interests.

I don’t agree with the premise that if you do what you love the money will come. My ten-page website about metaphors generated only $30 per month. But it’s difficult to sustain an effort without feeling personally engaged. My prescription for this potential dilemma is to start with passions or interests that are easier to monetize. That’s why I created websites about real estate and making money before publishing essays and stories online.

You don’t have to love everything about a business. I hate marketing, and I let my wife handle most technical challenges. But there should be some core parts of the business that you enjoy.

Business Is as Unpredictable as Life

I thought I knew what I was doing when our websites netted $11,000 per month. Now that they make a tenth of that, I’m less certain, to say the least. I’ve watched others close to me go through similar ups and downs with their businesses. Business is as much an art as a science, and it’s never entirely predictable, which brings us to our last lesson.

Anticipate Change and Go With the Flow

On April 10, 2011, our website traffic and revenue dropped by 40 percent. On April 24, 2012, it dropped again from one day to the next, this time by 50 percent. Those readers who follow Google algorithm changes will recognize these as the Penguin and Panda updates. The decline has continued (although more gradually), but at least we were ready.

We always knew (at least intellectually) that our websites were too reliant on search engine traffic. As soon as we saw the fall begin, we started transitioning into other ways to make money with our business (and outside of it.) That’s even as we flailed about for a way to stop the decline. My wife has done social media management, and I’ve become a freelance writer. We design and host websites for a few clients as well. So the decline in website revenue has been partly countered by these additional revenue streams. It pays to assume change will happen, even if you don’t know what form it will take.

That brings us to another advantage of starting a business on a budget without much capital: It won’t drag you down when changes come.

Our expenses were easily reduced. It costs about $200 per month to run our business now. And those big profits of years past? We could have invested that money into the business and perhaps lost it. Instead, it went into real estate investments, and at just the right time. Investments, like business and life, are unpredictable, and sometimes, if you try enough things, you get lucky.

Piggy Bank Photo via Shutterstock

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