Are you at the point where you are looking for cost cutting tips for startups?
Some phases of the economy demand businesses focus on cutting costs. If you are facing one of these periods in your market, check out these cost cutting tips for startups…
No matter how big or small your company is there are times when you need to take a hard look at cost cutting measures. In fact, all smart CEOs and entrepreneurs should be making a regular evaluation of their spending and revenues. Even when you have a full-time CFO, and great bookkeeper and accounting firm on retainer, and it isn’t your favorite thing to do.
Here’s how to look at your numbers, save wasted dollars, optimize for sustaining your businesses and profitability, even in tougher times.
What is the single one most important thing your startup business is all about?
Before diving into your finances and trying to figure out cost cutting tips for startups, it is imperative that you are focused. The number one startup mistake that even big companies make is cutting the wrong costs, and ultimately doing far more damage to their business and shareholders.
Revisit your mission, vision, and a big goal. Use this as the lens for evaluating every expense and hour spent. Each dollar and minute is either taking you closer or further from the number one thing and the critical milestones on the way there, and achieving them in the right and most efficient order.
Audit Your Finances
What are your real expenses? How much are they? What is your real profit? Where is that really coming from? You need to shift more focus and budget there.
You’ll probably quickly identify items that are not necessary expenses. You can also benefit from an outside consultation and unbiased review which may open your eyes to items you thought were necessary expenses, but which are actually killing your finances.
Also keeping your finances up to date will be critical also if you are looking to raise capital from investors as they will demand your financial model with all type of historicals as well as projections.
Keep in mind that in fundraising storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Identify The Musts
When thinking about cost cutting tips for startups, you need to ask yourself what are the most basic absolute musts your business needs to spend money on? There is probably truly very little that needs to be on this list. Be tough, you can always expand later once you are in a better financial position and have the luxury of discretionary spending.
If it is not on the must list, then you must not spend on it. You can’t afford to.
Get rid of those expenses. Be a good decision-maker. Every day and hour can count. Be decisive. Cut the cost. You can always spend more later if you have the money to spend.
Identify Waste & Areas For Optimization
There may be areas in which your organization is flat out wasting money and resources. Stop those issues immediately. This is one of the best cost cutting tips for startupsç
If you are in a business where waste is just a part of the DNA of your industry, and it absolutely cannot be avoided, then consider benchmarking, measuring, and ways to minimize that waste. Or innovate to change that dynamic. You may even discover a whole new game-changing business opportunity.
Then there are the parts of your business where you can save a lot by optimizing. Lead generation and lead handling is one of the biggest areas for this. Companies frequently waste 25% to 50% of their marketing budgets on the wrong channels, subpar conversion rates and poor responsiveness.
Filter and target more, spend less time on bad leads, close more sales, and increase ROI on your marketing budget and sales process. This can have the simultaneous benefit of bringing in more cash and improving profit margins so that you don’t have to cut costs as dramatically.
You may find interesting the video below where I go in detail into the cost cutting tips for startups.
Can you renegotiate leases, financing terms, contracts, and vendor services? Don’t be unfair, but look for win-win solutions. This may include buyouts, discounts, and tax breaks for paying in advance or extending contract commitments.
It usually doesn’t hurt to ask. The worst that can happen is that they say no. Yet, you might easily save 10% of your expenses across the board just by asking. Those savings can add up pretty quickly.
Restructure Your Team
When wondering about cost cutting tips for startups it is important to mention that many big established companies and new tech startups alike have made countless poor and inefficient hiring decisions over the past decade.
They spent big on frivolous perks. They hired in the most expensive cities where rents can be more than the salaries expected just a few hours away. They brought in in-house employees instead of outsourcing. They often hired too many people unnecessarily, overlapping skill sets, or gave them equipment and buried themselves in overhead which isn’t scalable. Remember, being scalable is equally about being able to effortlessly scale down in tighter times as up in good times.
Experienced CEOs and founders have found that making large layoffs at one time to right-size the company is far more effective, and a lot better for morale and operations than a series of smaller layoffs. Do the hard thing. Get it over with and move on.
In many cases, you may need to shed a lot more mediocre talent and bring in new more experienced talent with domain expertise. They can get you a far better ROI on your labor costs, with a much lower management burden.
Say No More To Meetings
Meetings haven’t been cool since the 1960s. They haven’t been needed since the very early 2000s. If it isn’t a must, then you can’t afford it.
Whether in person, over the phone, or via some new frivolous video chat platform, just say no to meetings.
Trade Instead Of Purchase
What can you trade for instead of spending money on it? If you have commercial real estate space, you don’t need that anymore. Can you offer it to someone else who will in turn give you discounts or send more business your way?
Can you trade your product for essential services you do need? Can you exchange marketing lists and messages instead of buying or leasing lists and building a prospect database from scratch?
Hopefully this post provided you with some guidance as you are looking into cost cutting tips for startups.
FULL TRANSCRIPTION OF THE VIDEO:
Hello, everyone. This is Alejandro Cremades, and today we’re going to be talking about cost-cutting tips for startups. Let’s face it. Entrepreneurship is not a straight line. You’re always going to have the ups and the downs. The thing is, it’s not only about how your business is performing, it’s about the economy; it’s about different things that you’re going to encounter. In today’s video, we’re going to be talking about what you can do to course-correct, to extend the amount of cash that you have or the life of that cash that you have in the bank and what you can do with that, and give you insights into how you can maneuver and execute during those times when you may be on the other side of the mountain. With that being said, let’s get into it.
The first thing that you want to do is to refocus. When you are refocusing, you want to understand what is that real most important thing about your business? Because before you even dive into the finances, you want to understand what are the single most important things, the ones that are necessary, and what are the ones that are nice-to-have? The ones that are necessary that are moving the needle and that are pushing that revenue, for example, keep the lights on and keep the company self-sustained, those are the ones that you want to double on.
The big mistake that many corporations, the larger ones, actually make is that they cut the wrong costs. What you want to do is revisit your mission, your vision, your goals, and try to identify what are the necessary to have versus the nice-to-haves? Then, you’re going to be cutting the nice-to-haves, but that’s essentially what refocus is all about.
Then you want to audit your finances. You’ve got to go through that statement, line item by line item. What are the things that you are going to be able to live without? You definitely want to cut those. You maybe want to have certain conversations with the people that you are in business with. If you’re giving them a lot of volume or a lot of business, maybe they would consider the possibility of bringing those rates down. What you want to do is cut corners everywhere you can. Obviously, at the end of the day, the biggest costs are going to be the employee count, and then also the office, so you want to try to get rid of the people that perhaps are more like dead weight on the boat, at this point; otherwise, you’re going to be sinking. And you want to optimize and get those people that are absolutely necessary and that are going to be moving the needle forward because when it comes to the finances, you want to keep it lean and to optimize, especially during the tough times where uncertainty is present.
Identify, as well, the wastes. What I mean with identifying the wastes is you want to know where are you putting costs or investments that are not necessary right now? Maybe there are new initiatives that you haven’t even validated, so it’s full of ifs around that. So, maybe you want to put that on hold for now.
Maybe another thing you want to do is, you want to take a look, as well, at not just the money, but perhaps where is time allocated? Where is time allocated that is very valuable that could be allocated somewhere else that is going to push the needle forward on the revenue side. It could be extra meetings; it could be time with leads that typically don’t convert; it could be time with customers that are too demanding, and ultimately, they’re not paying those bills, or they’re late. Maybe there’s a way for you to identify if there is a way to get paid faster. Again, take a look at the whole of the operation and see where are there certain costs that perhaps you can remove from a time perspective and then, obviously, from an investment perspective?
Also, renegotiate. We were already talking about renegotiating some of the contracts. Maybe another thing that you can do is renegotiate the lease of your business. Perhaps they’re also suffering. Maybe there are people leaving, and they want to retain you, especially during tough times on the economy. One thing that you could do is to try to see if they would be willing to give you a lower amount that you have to pay every month. Again, renegotiate as much as you can. Maybe there are other contracts, people that you’re dealing with, third-parties – renegotiate absolutely everything.
Another thing that you can do is restructure your team. Maybe this is the opportunity to take a look as to who you have on your team. What are they all doing? Maybe there are certain tasks that can be given to someone else that can also deliver those in addition to whatever they have. Maybe you are outsourcing things that you could take in-house and remove that expense. So, take a look as a whole to the team, and then see who is actually going to be delivering, who is not delivering anything and not moving the needle at all, so you want to remove those and add that time to someone else that can deliver. Maybe you even do it yourself. Again, whatever you’re outsourcing, try to bring it in-house and avoid that expense.
Say “No” more often to meetings. This is really, really critical. In the ‘60s, the whole meeting thing became an explosion. It was the cool thing to do. Then, in the 2000s, it was the necessary thing to do. But now, with technologies, there is no need for you to go have coffees left and right, or for you to go have lunches and dinners left and right. You can remove many of those and do it online via video conference or whatever you’re using. Also, that’s going to be not only a cost that you’re removing from the expense of the cost of those dinners, coffees, and whatever that is but then also your time. You’re wasting a lot of time on the commuting, for example. That’s time and cost that could be allocated somewhere else or that you can save.
Trading instead of purchasing. Maybe there are certain things that you need for your business. Perhaps there are other things that you are not using as much. Maybe you want to trade one for another. In that way, you avoid having to purchase something in addition to whatever you have that is going to be an additional cost.
We’d love to hear on the comment section how you’re going about cost-cutting. Also, Like this video and subscribe to the channel so that you don’t miss out on all the videos that we’re rolling out every week.
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