It is exciting starting your own business and at times optimism about the success of your venture clouds your judgement.
When you start out you need to be on a strict diet when it comes to your budget.
I have seen startups flush with loans buy $300 chairs for all their staff, the top of the line MACs, glossy business cards, office space in the top end of town – their budget office costs grossly exceeding what little revenue comes in.
It is easy to spend other peoples money but when the external funds dry up your business will become insolvent (which most starts-up are anyway) but worse you could end up bankrupt.
The bummer is that your idea might have worked and become a huge success but because you wasted all your investment dollars having expensive office space and chairs you will never know how huge your business could have become.
Its vital that you guard the investment cash (your ‘pot of gold’) from reckless spending. Do you need $300 chairs? Do you need to be in the smart-end of town? Do you need full-time staff instead of using contractors – it is much easier to terminate a contractor but emotionally much harder to fire a staff member.
By having a ‘lean and mean’ start-up you can test your idea with minimal cost and if it does become a success then hopefully you continue the ‘diet’ for years until you are in a solid position to spend a little with money in your kitty not via a loan.
Here are some ideas that we used when starting out:
1) Use open source software for the bulk of your systems. Of course some mission critical systems such as billing requires professional software that comes with a support contract but there is a massive variety of open source projects available that you could run most systems without costing you a dime in licenses.
2) Second-hand furniture is a great idea because its much cheaper than brand new and you can also get away with setting a retro feel in your office. I have seen an old door sitting on two saw-horses used as a desktop for the receptionist and it looked really cool.
3) I am in two minds when it comes to leasing computers and other expensive items. A MAC computer for us can last 3-4 years easy but if we leased the same model and updated to the new release once a year I think it would still be cheaper owning the machine. Have a look and compare prices.
4) Office space is one of your most expensive resources apart from staff so you really need to think about the reasons why you want to be in a more up market location even if you are in retail.
5) Staff are very expensive especially the ones that you cannot bill out such as receptionists. Because we are in the IT sector our needs require very skilled people. Even if we could get them locally and pay a high price we are still burdened by government laws for employees. Instead we use remote contractors (via Elance.com) as much as possible for two reasons: they are easy to get rid of when we don’t have any billable work and we can select the most skilled for top dollar anywhere in the world – location is not an issue for us.
So I hope this post has helped you think more about the importance of starting out lean-and-mean and to continue that approach throughout your business career – this will give your idea the best chance to grow into what you dreamed it to be.