How To Save Money While Bootstrapping a Startup: Four Practical Ways
Venture capital, ICO, and crowdfunding are great tools for acquiring capital for startups, but not every young company can successfully use them. There are tons of businesses that are small or just not mind-blowing enough for venture capitalists or private investors to put their money, or for banks to approve a credit line.
Founders of such companies have to bootstrap i.e. develop their project on their own without an external funding. This requires concentration, a constant search for new opportunities, and lots of efforts put into business development. Today we will consider several practical ways of preserving cash when bootstrapping a startup.
You don’t need a big office
It is highly unlikely you will need a ‘real’ office when bootstrapping your startup right away. There are plenty of successful companies that started either in a garage (Apple) or co-working spaces (Instagram and Uber). Nowadays even such giants like Microsoft are giving their employees an opportunity to work remotely. According to a research by Gallup, 31 percent of employed Americans work remotely 80 to 100 percent of the time. This is because their employers understand that remote work helps in reducing costs.
There are lots of co-working spaces out there, most famous are WeWork and Regus. Chances are that you will be able to find a decent co-working in a good location quite fast. This will help to reduce operational costs — something that is usually very hard to do. You will save not only on rent, but on the whole office infrastructure like computers, coffee and snacks, and maintenance services. All these amounts in thousands of dollars per month — co-working space will cost you not more than a couple of hundreds of dollars per person. Significant difference.
Hire contractors
The workforce is another big source of expenses for any business. Hiring a full-time employee has its obvious benefits — in this case, an employee feels a more deep connection with the business, receive benefits which increase motivation. But bootstrapped startup just can’t afford all these. Freelancers or contract employees may be a better option during the first days of a new business.
First of all, you will pay such workers based on their performance, not time spent in the office. Second, you will save on benefits, and in many countries, medical insurance alone may cost hundreds of dollars per month plus employers are responsible for paying multiple taxes. Contractors and freelancers take care of their taxes, insurance, and other expenses by themselves, which is much more convenient for a startup.
Sites like Upwork or Fiverr provide employers with an access to thousands of freelancers and contractors specializing in multiple areas.
Save on software
As a bootstrapped startup founder you should be in a constant hunt for saving opportunities. It is a good idea to study every aspect of your business to try to find room for improvement. After you’ve reduced costs by moving to co-working and hiring contractors, the next step might be optimizing costs of software you use.
For example, accounting. Any company needs software to manage invoices, payroll, etc. You can go and purchase a license for such software, and then you’ll need to either spend time by yourself or hire an accountant who will manage your accounting in this program.
It seems logical, but software vendors like Quickbooks often offer accountant free licenses for some solutions that they can give their customers. This is good for such companies as it helps them to maximize reach and get new users. For startups, it is good because you will pay just one time, for accounting services which price is often lower than of software license. You’ll get fully covered and reduce costs — this is what every startup founder should be seeking for.
Reduce communication costs
Communication is crucial for every business and lots of interaction between companies and their customers is still performed by phone. Building own telecommunication infrastructure may be costly for a startup as you will have either to get a physical place to place an equipment, purchase the hardware, set it up, provide backup connection channels and get someone to service it.
If you need to have an own-call center making cold calls and hundreds of current and potential customers calling you back, overall costs may be way too high for a bootstrapping strategy. However, there are free solutions like Zadarma private branch exchange (PBX) system. It has multiple features including IVR, call forwarding and transfer or voice recording which will cover 100% of needs any startup has. Using such a service allows you to save up to 90% on setting up a telephone for your business.
Final thoughts
The early days of any new company are always tough. Founders of bootstrapped startups sit on several chairs at one time developing the product, building the sales process, while simultaneously optimizing everything they see. Using practical tactics described above will help you to succeed in bootstrapping.
This story is published in The Startup, Medium’s largest entrepreneurship publication followed by + 371,663 people.
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