What's the best way to keep your startup in business? One of the few things you can control is the amount of money your business is burning through. The money in your company's bank account is a timeline indicating how long you have to survive. One of the best ways to give you the most time to figure out your business model is to look for ways to slash expenses. Here are the five best ways to make cuts:
1. Get creative with your option pool
How do you pay employees when you don't have enough money? The answer is to start giving your early hires equity to replace the salaries that they could find elsewhere. You want to aim to get your initial team on complete equity contracts, completely cutting initial costs to bring on help. Many entrepreneurs are so protective over their equity they refuse to use their option pool in their early stages. The problem is this prevents you from being able keep up with your expenses, and you end up with a huge pile of shares in a company worth nothing.
2. Don't pay for marketing, go interview customers
In the early stages of your company, you want to spend the least amount of money possible to confirm your hypothesis. Lucky for you, customer interviews and feedback groups are cheap to carry out. Don't start putting money into marketing until you've gotten some validation for your product. If you start buying ads and ordering swag before any validation, you could be using your funds on a waste of a product.
3. Don't waste money on your initial product
Your top goal when first getting your company off the ground is to get to market as fast as possible. LinkedIn co-founder Reid Hoffman is famous for saying, "If you are not embarrassed by the first version of your product, you've launched too late." Be careful not to pay a development firm or a developer a six-figure salary to build version 1 of your product. Use websites like Elance or Odesk that allow you to get something to market for a few hundred dollars. Investors and entrepreneurs both talk about the pitfalls of outside development. When you're just starting out don't worry about any of that--just make something customers can give you feedback on.
4. Set the right example
As the CEO of my startup, the other members of my team know me for being frugal. The first benefit of this is that I usually don't get asked to spend our company's money on things we don't need. This saves time and sets the right tone for our company. The second benefit of this reputation is that I force my team to be more creative with smaller budgets. Innovation is being able to develop solutions under certain constraints. Working within a company culture of preserving funds, the rest of my team has found great ways to improve our company while saving cash.
5. Ask yourself if the reward is worth the expense
Before I spend my startup's budget, I ask myself what the probability is that the money I'm putting in will have a positive return. You'll find that maybe the company ping-pong table isn't needed, or that company apparel can wait a few more months. Don't get caught up in the news about entrepreneurs buying fancy offices and taking lavish team vacations. Concentrate on getting your first customer, generating revenue, and becoming profitable. You'll have plenty of time and money for the rock star company parties later on.