When the economy is good, running a business is easy -- clients have money to spend, which means you can meet payroll. In tougher times, budgets get tightened -- which means you need to get lean or die.
For entrepreneurs -- in tech especially -- bootstrapping is second nature. However, many small-business owners don't have the same mentality, as their businesses may involve revolving inventory, brick-and-mortar locations, and larger staff on payroll and all the financial and legal issues that come with them.
At Evernote, in 2008, during the height of the last economic downturn, former CEO Phil Libin had only two weeks' worth of cash reserves in the bank. He called the staff in to let us know he was shutting down the company -- but that morning he received a last-minute reprieve from a Swedish investor of $500,000. That influx of cash would be enough for us to last six months -- if we tightened our belts, cut all unnecessary spending, and managed to grow enough for further investment.
We grew rapidly during that timeframe and secured the follow-on funding we needed. Three years later, we were named Inc.'s Company of the Year. Here are a few of the things that helped us stretch that Swedish investor's lifeline.
1. Utilize open-source and freemium software.
In my position, I was required to create graphics and documents -- and had been using paid software to do that. During this period, we couldn't justify the $500 a year cost when there were free tools that worked just as well. By switching everyone who was on those and similar tools, we were able to save over $25,000.
While it may not seem like a lot, to a bootstrapped company each dollar matters. Make a decision as to who really needs access to a Photoshop or Microsoft Office license. For everyone else, there are free tools, or ones they may already have access to.
2. Create partnerships.
While we were still relatively small, we found other companies that were of similar size and in related fields to cross-promote for free or for an affiliate percentage. While those payments were miniscule to us, these partnerships grew both our business and theirs.
Advertising can make or break a company -- but fees for services are often expensive (and can be out of reach for a small business). By offering free or discounted products to partner companies -- and promoting theirs as well -- you can both grow together.
3. Encourage remote work.
Evernote is a Bay Area company. It launched in Sunnyvale, moved to Mountain View, and eventually settled in Redwood City. Office space in all of these areas is expensive. By encouraging remote work for our earliest team, we were able to have a team double what the office space would allow -- at a lower cost than what local talent would have required.
When considering remote teams, think about the cost of office space and the pay scale in your local area, and then compare it with where you'd be hiring. You'll find that areas like San Francisco have a 30 percent premium or higher over other parts of the country, and you can increase your ROI by hiring remote workers.
4. Wear many hats.
Lastly, we froze hiring during that time period, and raised only a few critical roles that had been part-time to full-time. Instead, we all worked harder to grow the company by splitting the responsibilities among ourselves.
While it may seem obvious, in a smaller company you'll have to fill all the roles until you can hire more people. Even as your company has grown, however, you may have to return to this phase again during leaner periods for your business to survive and thrive again.
The smarter you are with your business finances now, the stronger you'll be in the future.