4 Great Ways to Drive Down Startup Costs
Entrepreneurs are great at coming up with innovative products and taking the market by storm. Sometimes, though, they’re also great at getting swept up in their own hype – and that can lead to a dangerous loss of financial perspective.
In the early days of a startup, all eyes may be drawn to booming sales reports. Meanwhile, more mundane – but absolutely critical – metics fall off the radar. This can leave the startup in a financially precarious state.
Amid a sales frenzy, the thought of running out of cash may seem ridiculous to an entrepreneur. The reality, however, is that running out of money is the second most common reason why startups fail.
Entrepreneurs cannot afford to be blinded by their own euphoria; they need to keep a clear eye on their costs and cash at all times.
Easier said than done, right?
Well, that’s why I’d like to offer entrepreneurs these four ways to drive down their costs and ensure their companies don’t succumb to the same problems that plague so many other startups.
1. Build a Culture of Win-Win Negotiation
The goal of negotiation should never be to force your suppliers into submission – this is business, not the UFC.
Rather, negotiation is about bringing win-win situations to the table. Mercilessly forcing down salaries, supplier rates, and freelancer pay may cut costs – but it may also cut employee enthusiasm and supplier goodwill. Suddenly, all the effort, quality work, and loyalty you need to keep your business running will disappear.
Talk about a lose-lose situation!
So, when negotiating prices – which you should do at every possible opportunity – you should try and hit the sweet spot. Try to find prices that work for both you and your vendors, and you can create beautiful, sustainable supplier relationships that support your growing business – without breaking your bank.
2. Reduce Office-Space Rental Costs
Office space is not always essential – especially not in the early days of business. Amazon, Google, Disney, HP, Apple, and Microsoft all launched from the humble spaces of residential garages. Why incur the unnecessary cost of office space if you can do everything you need to from home?
You might lose the glorious sense of “arrival” that you get from walking into your brand new office for the first time, but this short-term strategy will help you keep costs down without affecting productivity or quality.
Save a little money now, and when the business is big enough, then you can spring for office space.
3. Use Freelancers
In the early days of business, freelancers can be a great way to bring down costs. Thanks to global, online freelance marketplaces, most any entrepreneur can find qualified workers who typically command lower rates than in-house, full-time employees might – and that’s to say nothing of the costs you’ll save on office space, tools, electricity, benefits, severance pay, administration, and so on.
Don’t just take my word for it. Do the math, and you may find plenty of areas where it makes financial sense to use freelancers to help you drive down overall costs.
4. Take Advantage of Tax Breaks and Tax Incentives for Small Business.
I get it: Tax breaks are nowhere near as exciting as high-profile product launches.
Still, entrepreneurs should know that there are many tax breaks and incentives available to small business that can help drive down startup costs – and lower costs should always be exciting.
For example, many states in the U.S. offer tax breaks for hiring apprentices, and there are plenty of other tax breaks out there for young businesses. Do a little research, talk to a tax expert or two, and you should be able to find some new deductions in no time.
While these cost-cutting strategies are highly effective in the early days, not all of them will be sustainable in the long term (e.g., you’ll probably need to pony up for office space at some point). Your costs of doing business will go up eventually, so it’s vital that, in addition to finding ways to drive down costs, you also develop a pricing model that will be able to absorb the true costs of running the business.