Cash flow management for a startup – learning to be frugal

Money doesn’t grow on trees, and for many startups the expenses that go with establishing a business come as a shock. The delays in revenues come as an even bigger shock.

Here are some of the key things to remember.

It will cost three times as much and take three times as long as you think.

This old saying is a reminder that you will either need to save more than you think before you start, and that you need to start looking for income or investment in your company as soon as you can. Also, forgive yourself for not meeting your ambitious schedule that wasn’t tempered against suppliers or the market.

Flog product as soon as you can

You may have grand plans for your ultimate product, but I guarantee that you will go bankrupt before it is ever developed. Products are always a work in progress. Always remember that your product needs to satisfy your customer first, and you second.

None of this is suggesting or recommending selling inferior products, only that you sell products that meet your customer’s needs.

On TV we are often treated to tales of people who stick relentlessly to their vision of product and quality and have reaped the benefits in the long run. Fine, yes a few do succeed, but you have a better chance of winning the lotto than doing this.

The people who do succeed like this tend to be artisans for whom there is a small but rich clientel willing to pay for the product.  You also need to have a decent amount of experience, the ability to deliver on your visions of perfection and an ability to ignore the fact that you are out on your own.

The market will tell you what is working or not, and you will very rapidly start adapting your business model and product to match.

In other words, you need to make money to pay for improvements to your product, and you can’t do that unless you are selling product.

Spend as little money as possible

To start a business nowadays you need a website, email address, a business card and a company. This should only cost a couple of grand.  I would have said computer, but as of the last year or so you can probably run your business on internet based software (SAAS) without even owning a computer if you really wanted to.

Wait till later to reward yourself.

Spend money on the product or experience

A typical trap for a startup is overcapitalisation. You pay too much for everything up front to build what you think is the way to run a business.

Stick to this rule – ‘If it doesn’t genuinely make a difference to the customer experience or genuinely help staff retention, safety and productivity, then don’t spend it.’

Here are some tips on saving money: 

1. Office and business premises are expensive, so work from home for as long as you can. Use telecommuting tools and online collaboration tools.
2. Pay a bit more for an unlimited phone plan.
3. If you are embarrassed by your car, catch a cab to important meetings or park your car round the corner and walk a bit further.
4. Spend time doing research yourself rather than paying advisors where you can. As the owner you have a vested interest in making things work, and your time is effectively free as long as you aren’t neglecting sales. So ask around for pointers, but do the heavy lifting yourself to save money.
5. Pay for a virtual office address. Sadly, many buyers feel weird about dealing with people working from home and this is why there are companies who will answer the phone for you, collect your mail and offer meeting rooms for clients.
6. Meet people in good cafes rather than in your home office or tatty cheap meeting room.
7. Meeting rooms, showrooms, retail space and the reception areas should always be professional looking, very clean and welcoming. If you don’t take anyone behind this façade it can be held together with sticky tape and string as long as it works.
8. Use public transport where you can and always but always travel economy class. If you really want to be fresh for that important meeting then it is often cheaper to fly economy class the day before and stay at a hotel for the night. 

Counter examples include: 

• Paying the money to be located near the majority of your potential customer base could be the best investment you make.
• Make sure your website looks great and functions well.
• Don’t skimp on IT for knowledge workers -  I make sure my team get a decent lightweight laptop with a good internet connection and current software.
• Allow people to personalise their work space a bit. That element of choice can make a big difference to morale.

Always bill on time

Yes, this is obvious, but when you are in the time consuming business of a startup invoicing can take second place to more urgent work – after all they have a contractual obligation to pay don’t they.

This is true to a certain degree and can work while you have a decent amount of credit available. The issue here is that the timing of revenues and expenses don’t match.

For example in my own business I pay my staff every two weeks and invoice monthly. In practice this means that I receive cash up to 6 weeks after I pay my staff. If I delay invoices by a week, then in many large companies this means that I am now allocated to the following months invoices, and I will then be 10 weeks out of sync. If you have large expenses this timing mismatch will kill your business faster than anything else.

The second reason for billing on time is more psychological. If you bill late you are effectively saying to your customers that you don’t care so much about money and that they can pay you late too.

The old rule is that if you act like you’ll get paid then you will. I have learned the hard way how true this is.

Learn to think short term to reduce locking yourself into longer term risks

Lease equipment at the start. Sure the monthly bill may be high, but you get to sign up a short term contract, or even take equipment on an as needs basis.

For physical products use rapid prototyping or other higher unit cost, short product run methods for your initial product. The reason being is that it the capital costs are a lot lower. You don’t want to spend $30,000 on tooling dies when you can print your product on a 3D printer or use a slower more labour intensive method.  Many of the truly cheap unit cost manufacturing technologies require you to make many thousands of your product. This can be the kiss of death to startups as it is pretty much guaranteed that your first design or two are not going to be as popular with the market as you think.

There are also manufacturers who specialise in short product runs and prototype manufacturing for complex goods. They spend a lot of money on equipment and sell their high quality services to a wide range of clients.

Use local IT people for any complicated web based business where you can. The reason for this is that you can have that face to face interaction and spend time with them to learn what the problems are and sort them out. Yes, this is a lot more expensive that hiring people out of India, Ukraine, the Czech Republic or so on, however, it makes the process smoother and brings local cultural sensibilities to design and wording.

Keep on being frugal

I could keep going on this topic, but you get the essence of it now. Learn to be cheap where it doesn’t matter and you will do better.

Business plans are bollocks

This is you - for starting a business. Ignorance is bliss I say.

Depending on what kind of business school hype you are smoking, you will think that all businesses are the same.

Scope out the needs, design a solution, raise funds, develop solution, sell solution and then get rich.

Yep – and I have unicorns in my garden, and I talk to the pixies and leprachauns every night in my dreams and everyone in the whole wide world is my friend.

Are you picking up on any sarcasm yet?

It doesn’t matter whether you work in software, product design or major projects the reality is that business plans and project plans are incremental and repetitive.

The real process is along the lines of the following

• Identify a market need.
• Scope out the need.
• Design a solution.
• Raise less funds than you wanted – if any at all in which case exit loop and do anything legal that makes money.
• Make a solution
• Try to sell the solution – discovering that your idea of what the market wanted was too simplistic and didn’t take their real needs into account.
• Drink yourself into oblivion for a couple of weeks.
• Come back to the office determined to do something about it.
• Work as a team to make your product better match client’s needs.
• Run out of money.
• Pay staff using your credit card while begging for funds from everyone you think might have money (this is the point that you will consider selling your soul).
• Run over your credit card limit and start borrowing from family and friends, basically doing everything you can short of embezzlement.
• Finally get funds through investors or pre-sales. At this time you will have four separate and entirely made up versions of your business plan which you hand out to investors depending on their attitudes. You may also be indulging in selling vapourware (OMG).
• Get revised product to market – discover hidden glitches, and fix at a great cost which is written off as capital.
• Finally get traction and make more sales.
• Have dinner at home with your partner and children for the first time in 2 years.
• Enter growth stage and have a whole new set of pains as you take on employees and are forced to make up systems as you go.

 From all this, the point is that you don’t know everything when you start out, the market is a brutal mistress and you will have to reinvent and start again on many aspects of what you are doing. And this is all normal.

Enjoy.

Leave something on the table

One of the worst complaints that can be made about a company is “they’re greedy.”

Yes, you are allowed to make a profit – most people understand and accept that.

Yes, you are allowed to charge for scarcity or urgency – again this is understood.

However, if you consistently charge more than is normal in the market then customers will notice – and they do gossip.

Also, being unreasonably opportunistic in pricing – i.e. seeing that they have no choice but to use you this time, will lead to long term relationship damage.

People will go out of their way to avoid using a company they think is greedy. They may even pay the same fee, but for better service or a better relationship.

Most transactions in business are a part of a bigger relationship. If you have a one off transaction then you have no motivation to give a better price other than to make a firm sale. If you are looking for repeat business or are interested in your reputation then you need to make the other person feel that a deal is not totally one-sided.

Leave something on the table to have better long term relationships.

You need to be more outrageous

There's nothing wrong with a bit of showmanship

Marketing and promoting your company is absolutely vital. If nobody knows you exist then how are they going to buy your product?

Whatever you are doing now is probably not enough to get attention.

• I bet your business card is the usual name rank and serial number. Do you use it to provide contact details or is it designed as the mini-marketing tool that it really is?
• Do you put your opinions about what is not working in your  industry on the record?
• Do you tell a client when their scope (invitation to offer, etc.) misses the mark?
• Do you provide a client with what they need as well as what they say they want?
• Do you fight for recognition when the procurement section of a potential client decides not to use your company?
• Do you offer your opinions to the press?
• Does your website and branding reflect what the company needs as opposed to what you prefer? The odds are that you are more conservative than your brand should be.
• Do you talk to anyone you meet about your business? Sure it might be socially embarrassing on occasion but if you aren’t prepared to risk embarrassment then how will you ever promote yourself.
• And most importantly – do you attract attention to the business?

Stop trying to do it all yourself

Why are you doing the work yourself?
But darling, I save on fuel.
Yes, but it takes us ten times as long to get there.

The formative stages of your new business venture are hard. You need to be doing a little bit of everything – marketing, legals, accounting, design, IT, HR and more.  You very rapidly learn to be a generalist.

If you can get across the fundamentals then you can help the company grow rapidly with a minimum of indecision. This works for a while, but sooner or later the company gets too big for one individual to be the decision maker – there are just not enough hours in the day.

I have seen many examples of fast growing companies topping out at about 20 employees and having trouble growing beyond that. I have no studies to back this up for you, but the maximum size of a company under a central decision maker seems to be in the 20-30 employee mark.

The issue here is the founder. Once they worked out how to do everything they then try to keep doing it. Sooner or later you need to start trusting your people and managers to do their job.

You can use part-timers to help out. Hire an accountant one day a week. Hire an experienced HR person on a 2-3 days a month basis. Put on salespeople on a commission basis. Have IT support on a retainer.

Give yourself a break and help your company live up to its potential and stop trying to do it all yourself.

Act like you own it

Nah ... not my problem.

When you own a business you own the successes and the failures.

As an employee it is always possible to find a way to put off decisions and deflect blame. A lot of people go their whole careers avoiding making decisions or taking responsibility – and to a degree they are correct as the system largely determines ability to make a difference to outcomes.

The experience of setting up a business is a bit like moving out of your parent’s home. It is scary. There are a lot of things you don’t know how to do, and you didn’t realise how much was done for you.

It’s the weather. It’s the competition. My employees are just lazy. The red tape is too much. My suppliers have it in for me. We have a great product but nobody recognises it.

All these are excuses I have heard and can guarantee I will continue to hear. These come from people who don’t own the outcomes of operating a business.

Now it’s just you. Accept this reality and get on with it.

Thank you friends for their kind advice – but ignore them

Supporters and those with constructive criticism are welcome

One thing you discover when you start a business is all the advice that your friends and acquaintance have for you.

On the one hand, it is really great to have all the interest in what you are doing.

However, what you will find is that what a lot of people tell you is really quite negative.

You will hear comments like, “it’ll never work”, “you aren’t an entrepreneur”, “what would you know about running a business”, etc.

When you get this from one or two people you can deal with it, but when you are getting this from many people it can absolutely crush any morale you have.

As to why people talk like this – I think the answer is simple – they are projecting their fears. They are imagining themselves actually taking the risks you are, and most of what they are saying are the reasons why they haven’t done anything yet.

Some of your friends will be constructive and supportive – keep talking to them.

But, don’t feel compelled to talk regularly with the negative people around you.

Be polite when you listen, nod a lot, don’t argue, and ignore most of what you hear.

Grace and Gratitude

Act with grace under pressure

I’ve been doing a lot of sales calls and cold calling lately to drum up more business and have had a few good reminders on the importance of grace and gratitude.

When you are under pressure, it is sometimes hard to remain civil. If you find yourself getting cranky at people or picking fights with potential clients, then it is time to take a step back.

Here are a few rules to remember when you are starting to feel curmudgeonly or thin-skinned.

1. Always be grateful that potential clients give up their precious time to speak to you.
2. Let other people go through the lift doors first.
3. Take the time to talk to people and offer your appreciation for their efforts.
4. Let others with a greater need take precedent.
5. If they are having a busy and stressful time you should be calm and easy to deal with. That is often appreciated – you are like an oasis in the middle of the desert to them.
6. Don’t talk about all the things that are concerning you. There are probably a dozen things eating away at you that are on top of your mind, and you want to talk about them. Focus only on the positives when you are dealing with others.
7. Accept rejection with grace – that is, with a smile and no reflection of the hurt you feel to the person who is rejecting your business.
8. Accept muddleheaded thinking with grace – that is, a lot of people don’t know exactly what it is that they want and may express it in unusual or incomprehensible ways. Find ways to talk to them without being judgemental.
9. Allow others to save face – it is all too easy to stick the boot in on people who are acting above their level of competency. They don’t know what they don’t know. Some of them will remember later on.
10. Acknowledge that their hands may be tied by internal processes. They may want to make a difference but they can’t. Separate your frustrations with the system from your dealings with individuals and they may go out of their way to help you.

If you act like this – even if you have to remember to – then people will be glad to deal with you now and in the future. 

Just be there when a decision is made

Make sure you're in the mix

This is both one of the most obvious and profound statements you can hear about marketing.

When somebody is making a decision to buy your product, they need to know about your product and know that it is available as a choice.

Let’s start with something simple to illustrate. When you walk to the drinks fridge at the shops you know you want a drink. You look at the available options and choose which one to buy. The chances are that you will buy one of the major brands because they are rich enough to spend enough on advertising to keep it front of mind for you. However, if they see a lesser known alternative then some people will try that just to see what it is like.

To take an example from the other end of the spectrum, if a company is looking to buy a product then their procurement process will allow them to identify available suppliers. They will usually go with the usual suspects, but as they are mandated to be fair, they will also consider newer suppliers. How are you making sure that they are aware that you exist and that you offer the product they want?

Really, this is the essence of all marketing. Your product needs to be present either physically, or in their minds when they are making a decision. If you want to get ahead learn to think like your buyers.

It’s a leap of faith

Take the chance - it might all work out

There is no getting past the fact that setting up any business is a leap of faith.

The only person who can make the final decision is you. Either you believe it will work or it won’t.

If you believe it will work you will at least try.

If you have seen others succeed at something similar, then you know that it can be done, you just have to do it yourself.

If you are launching a new product or service then your leap of faith is bigger. The current ‘lean startup’ paradigm is to test the leap of faith type assumptions in your business model to find out what works and what doesn’t.

I know many of you out there have been playing with the idea of setting up a business for years now.

Here’s what I say to you.

There is no guarantee of success – but conversely there is no guarantee of failure. All you can do is set yourself up so that you are able to incrementally change your business to meet what the market actually wants, and then grow.

If you have picked too small a market, or your timing is bad, then you’ll have to decide whether to stick with it or to sell out.

If you have faith, then back yourself to give it a go. It will be stressful, it will be difficult, it will also be exciting and you will gain a lot of satisfaction. A couple of years from now you will look back and wonder why you didn’t do it earlier.

Pay for one hour of an expert’s time – not 15 hours of someone who means well

Yes Maam, he does indeed look like a pilot, I'm just not sure if he can fly yet.

Expertise is important. An expert is somebody who has accumulated sufficient experience on a subject matter to sell themselves as being able to provide you a shortcut through your own learning curve.

I have learned that it is better to pay for an hour of a Senior Law Partner’s time and ask a bunch of hypotheticals about commercial and legal matters, than to pay for a junior lawyer to go on a voyage of discovery for a few weeks.

An experienced tax partner at an accounting firm will let you know your main choices and advise on the due diligence and fact checking required for your actions.

An experienced engineer will be able to tell you the known issues with your technology or scale up ambitions.

A good commercialisation expert will be able to point out the known paths that you could take.

The key thing about actual experts is that they will usually couch their language with terms such as ‘could’, ‘might’, and ‘possibly’. This is for two reasons. First, nothing is certain. Secondly, they are taught to do so by their legal departments as many firms have been caught out by vexatious lawsuits from clients who thought that they were getting a 100% accurate prediction of the future.

To help sort out your own business go and make contact with some genuine experts and use your interactions with them to set the vision and strategy of your company. Then use your employees or less experienced contractors deal with the day to day work.

Time to grow a set

Who do you most want as a client and are too afraid to talk to in case you don’t win the job? Time to go talk to them.

Looking to take on employees but don’t really know how? Go talk to your accountant and a lawyer.

Having troubles delegating? It’s time to handover responsibility and not interfere.

Running out of money? Go set up a working capital facility or go raise equity.

Don’t know what to do as a next step to grow the business? Go talk to someone who has a lot of experience in that business.

Having trouble with your main client? Up their rates or fire them. You need multiple clients and you can’t run your business being continually afraid of your main client.

Worried about recession? Build a larger client base

Looking to quit your job to go fulltime on your startup? Make sure that you have savings to get you through a few months and then credit card facilities to go past that – then take a calculated risk.

Success and talent – are they related?

The correct answer is – partly.

Let’s take a hypothetical example. There are two students at university who have exactly the same IQ, pretty similar personality traits and score the same marks in the same classes. In other words before graduation their talent is identical.

Twenty years later and one of the students is the CEO of a multinational and the other is a middle manager. What happened here?

The first student was given more responsibility earlier, and on success was given more responsibility. Basically they ended up being on a steeper curve climbing up the ladder.

We want to live in an egalitarian world, and generally the developed world largely is.

The flipside is that when you succeed at something earlier then not only do you feel better equipped mentally to try something harder, but those around you trust you more and give you more resources.

The incremental increase in trust and resources translates into greater opportunities, and so on. This is self-reinforcing.

The above is a bit of a construct, but it is based on research which is proving that success does indeed breed success.

My tip to you is to start your company and try to grow as soon as you can. Don’t put it off.

The reasons above let you know why. Every day you are walking down the path to your goal is a day ahead you are of potential competition. Competition is important too as when you see them walking faster you pick up your own pace to match and all of you do better.

As a mental health check, if you find yourself being upset that someone you know of lesser talent than you wins work when you don’t, remember that it is not just talent that counts. They probably presented better to the customer than you did. Try to be happy for them and learn from them so you can better compete.

Read your star sign – why astrology can break rigid habits

I originally trained in science and have since been working in pretty much analytical professions ever since. I can even tell you exactly why astrology is a load of bunkum, however, I have learned to appreciate one aspect of it. That is – it encourages change and experimentation.

Seems contradictory right.

Many people with a strong technical background get stuck in their ways. Yes, I am talking about you.

You have a limited group of friends, you are rigid about the times you go to and leave work, you generally eat the same foods, you watch the same shows each week, and so on. You are probably stuck in a rut.

Time to introduce some chance into things.

It doesn’t have to be astrology that does this. There was a book called “The Dice Man” years ago that encouraged people to choose what to do by rolling dice.

The Jim Carrey movie “Yes Man” was another example where rather than choosing to follow the normal routine he said yes to everything.

Start mixing your life up a bit.

• Try buying a new brand of toothpaste, deodorant, bread or breakfast cereal next time you are at the supermarket.
• Let your hairdresser or a complete stranger pick your next hairstyle.
• Go into a clothes shop you have never been to.
• Force yourself to go out to a restaurant or café on a weeknight.
• Go meet complete strangers at an event.
• Go the long way to get to work.
• Go somewhere new in your lunch break.

The benefits are huge. You will get used to being out of your comfort zone and you may just meet all sorts of people who can help you on your way.

Get out there and mix it up a bit.

Success is the best revenge

“You’ll never succeed.”

“That’s the stupidest idea I ever heard.”

“You just don’t have the right personality to do business.”

“The market is already sewn up, how on earth do you think you can make it?”

“Ha ha ha… you want to what? That’s the funniest thing I’ve ever heard.”

“What if you don’t succeed. Think about your partner and children. You’re putting it all at risk.”

And so on. If you haven’t heard variations of the above, just wait, you will.

The modern education system is set up to train us all as good workers for the modern industrialised society. 

When you go into business you are stepping out of the comfort zone that we all exist in and others will react.

Ex-co-worker’s reactions can range from seeing you as an inspiration for them to do something to outright hostility.

Family members can try to talk you out of it.

Friends can be quite vicious in terms of comments they make.

Potential clients can be quite cruel during the formative stages.

Guess what – none of that matters in the end.

You will probably develop a long list of people you’d love to tell “See, I was right, you were wrong.”

There may be others you fantasize about getting revenge on – which is fine so long as you only think it and never act on it.

The supreme form of revenge on the naysayers is success. They see the outcome and have absolutely no idea how you did it. Their view of the world is obviously wrong, or maybe you are just an aberration to their world view. It doesn’t matter.

The mere fact that you exist and are succeeding is enough to irritate them so get out there and make it work.

How to replicate a successful team

Your business is going great. You have managed to pull together a team that delivers your services to your main clients and now you want to grow.

You are thinking of setting up a new office in another city, or putting together a second team in your existing office.

Here’s where it gets hard.

A successful team is usually led by a few great individuals who have worked out how to get on with each other, work as part of a larger team, and how to deliver to customers.

It is naïve to think that you can just hire a totally new group of people to replicate the same phenomenon.

This is the point where you need to start capturing some of the team’s operations in systems and processes. This shouldn’t be overdone. Work with them to recognise some of the key areas of their work processes which should be replicated.

You can also split the team and add new people to both the new teams. However, this is potentially disruptive to the existing team, and your cash flows if they start failing to deliver because of the disruptions.

You can also start rotating people through the successful team before moving them to the new team. This might involve taking the No. 2 or 3 from the original team into the new team as well. Also set up a mentoring/collaborative arrangement with the existing team.

You can hire in successful individuals or teams from other companies. This needs to be accompanied by ensuring that they really do know their field of expertise as well as the say they do. Also, you need to ensure that there is cultural and values compatibility otherwise toxic relationships may form with the existing team.

If you are setting up in a new city or town, you definitely need to get some of the new team to come to the existing operations and vice versa.  If you don’t do this then you can end up with a strange ‘us and them’ type culture that can become quite adversarial. You really need to send legal, marketing and finance types to spend time with the new office to keep all of you aligned.

Replicating a successful team is possible, just accept that it can take some time and quite a bit of effort.

Don’t try to build a market as well as your product

This feels counter to the conventional wisdom. I mean, just look at Google, Facebook, Amazon, and eBay after all. They all did it didn’t they.

Well, in a word, no.

Google improved on internet searches and took out the competition. Facebook is largely a new phenomenon, but is still largely bankrolled rather than paying its own way (the buy high sell low strategy I talk about). Amazon consolidated the mail order book catalogue business.  eBay took the essentials of community auctions and ‘For Sale’ sections of newspapers and put them on line.

Microsoft didn’t invent computers or operating systems – they made it more user friendly, so I’ll give them, IBM, Radio Shack/Tandy and Apple co-credit for actually helping create a market. Mind you, consumers and businesses were ready to adopt 40 years of computer based automation for their own benefit, so the market was ready in many ways.

So, if we put aside the above examples the other 99.999999% of us are scratching round trying to sell our products and services.

An attitude of “build it and they will come” is a particularly good way to lose money.

If you want to build a business in a conventional way then you should pick crowded business sectors.

Put that another way, competition is usually thickest where most of the money is.

Find a way to do the same thing as everyone else, but better, and you will grow rapidly. The market is already primed to buy your product and is cashed up, so you just have to take out part of the market share from your competitors to make a profit.

Employees are not your servants

Maybe I’m just destined for mediocrity, but I really can’t stand spending time around people who have an overdeveloped sense of self importance.

You know the ones I am talking about. They are destined to greatness, and walk into any given room with an air of authority and control, however, they often lack any meaningful experience in the business they are in.

This is a reborn aristocracy, not capitalism.

The revolution in industrial relations over the last century was the recognition that there needs to be a system or set of rules that both the employee and employer can turn to in order to assert their rights.

Employers expect a certain set of behaviours and productivity in return for payment.

Employees expect boundaries on their personal lives and dignity to be respected for their hard work.

It is not just the small or family owned businesses that do this. Many construction, consulting and professional services companies also treat their staff as expendable servants. How many great people burn out and are sidelined from a career they would otherwise do well in for their whole lives due to the insane pressures these companies put on their people.

I have seen some truly great small companies that take people who from these industries when they are burned out and treat them with dignity and respect, and go on to great things.

It’s amazing what happens when you treat people as if they are human rather than your servants. Welcome to the 21^st century.

Buy low sell high, everything else is an explanation or compliance

It never ceases to amaze me how many company failures are caused by forgetting this.

A great way to go bust - just give away your profits.

There have been some spectacular failures in the business world where a kind of group think effect takes over and suddenly millions are lost in the name of gaining market share – buy high, sell low – if you like.

Industry specific explanations about business are all about this same principle.

Complying with regulations is an important aspect of maintaining a ‘licence’ to operate, however, regulatory compliance is not actually your business, it’s a cost of doing business.

When you take into account the cost of goods, labor, buildings, machinery, office space, insurance, IT systems, marketing, distribution, etc. you have a pretty hefty lot of bills to pay.

I only wish it were as easy as charging your costs plus a margin – that would make life easy. However, your market likely has pricing points for the service you are offering.

So the sell high part of the equation is pretty much set for most of us. So the only part you can play with is the ‘buy low’ part. This is where as a startup you need to get creative.

The key point for most startups is cash flow.

• If renting equipment is cheaper than buying, then rent.
• When looking at office space, look at your total outgoings per year, not just the cost per square metre.
• Pay for delivery as needed until you can afford a truck and a driver.
• Focus on making sales and delivering at first. Setting up better systems and processes can come in the future as you go through a consolidation phase.
• Can you work from home and use a hire by the hour office when you need to meet clients.
• If you need to visit clients often, consider paying for a dedicated parking space, it may well be cheaper than renting an office.
• Meet clients at a local café – a lot of the time they may be happy to just get out of the office for a while.
• Use temps where you can to save on total costs.
• Can you buy an off the shelf IT system that reduces the administrative burden for your business?
• Instead of making everything yourself try buying parts from larger manufacturers who can provide economies of scale and better pricing.

You get the picture – have some fun, and keep buying low.

Get your hands dirty

In a small company there is no such thing as a supervisor or an ideas person. Sure you can do elements of those things, but no start-up can afford to pay for such roles on a full time basis.

Let me give an example.

Recently a great café in my town changed owners. The new owner likes to stand around and watch his waiters and then scold them when they do things wrong. It never occurs to him to actually be one of the service staff and help with the customers. Needless to say, in the space of 6 weeks the restaurant went from always being full to being almost empty except for pensioners cashing in their coupons.

Likewise, you need to be able to actually contribute to doing the work. If you just want to provide money then be an investor. If you just want to contribute ideas then go work as a consultant. If you want to supervise people all day then go get a job somewhere.

If you are doing the business as a lifestyle choice then jump in and learn as much about the job as you can – you can’t afford to pay people to do everything.

Always be prepared to get your hands dirty – and as a company owner you will probably need to do more crappy jobs just to keep things going for the first year or so.