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8 ways to save on startup business costs

It’s a wise move to keep your startup business as lean as possible in the early years. Yet, starving your business of funds can risk service deficiencies and opportunities being lost. This article will look at the areas where you can potentially save money whilst also giving your venture the best shot at being a success.

Combine awareness of unnecessary expenditure (startup or not) with a strong focus on reinvesting business funds as your startup grows, and you’re giving yourself the best opportunity to become a successful business owner.

What is the ‘lean startup’ concept?

Before diving into smart saving suggestions to consider when setting up your startup, it’s important to consider a lean methodology. 

The ‘lean startup’ concept, first proposed by Eric Reis in 2008 (followed by his bestselling book in 2011, offers entrepreneurs – in businesses of all sizes – a way to test their vision continuously, to adapt, and then adjust before it’s too late. Central to the lean startup methodology is the assumption that when startup businesses invest their time into cyclically developing and refining products or services to meet the needs of early customers, the company can reduce market risks and sidestep the need for large amounts of initial project funding and expensive product launches and financial failures. Those committed to a lean startup approach believe constant feedback yields better results.

There are three key principles to the ‘lean startup’ method. Click on the dropdowns below to reveal more. 

  • A business model canvas

    A five-year business plan that forecasts income, profit and cash flow is very much based on the assumption that it’s possible to figure out most of the unknowns of a business in advance, before you raise money and actually execute the idea. In contrast, the first key principle of the lean startup method is to summarise your hypotheses in a framework called a business model canvas – a diagram of how a company creates value for itself and its customers.

    “Business plans rarely survive first contact with customers,” comments Steve Blank, in his article for the Harvard Business Review – Why the Lean Start-up Changes Everything. “No one besides venture capitalists and the late Soviet Union requires five-year plans to forecast complete unknowns. These plans are generally fiction, and dreaming them up is almost always a waste of time. Startups are not smaller versions of large companies. They do not unfold in accordance with master plans. The ones that ultimately succeed go quickly from failure to failure, all the while adapting, iterating on, and improving their initial ideas as they continually learn from customers.”

  • Customer development

    As a Silicon Valley entrepreneur, Blank is recognised for developing the customer development method, one of three key parts of a lean startup, which recognises that startups are not smaller versions of larger companies but require their own set of processes and tools to be successful.

    While a convincing business plan is important for obtaining investment, this insular approach is based on little-to-no customer input. Once investment is achieved, a substantial amount of time and money is invested to prepare a product for launch. Only then, will you receive substantial feedback from your customers. And, Blank continues, “too often, after months or even years of development, entrepreneurs learn the hard way that customers do not need or want most of the product’s features.”

  • Agile development

    Working alongside customer development, agile development eliminates wasted time and resources by developing the product iteratively and incrementally. It’s the process by which startups create the minimum viable products they test. 

    Combining customer development and agile practices lies at the heart of a ‘lean startup’. Listing, learning and developing your product as you go will reduce risk by ensuring your business solves real customer problems, rather than assumed pain points. This approach can also flag whether your target market is misjudged. There might be an entirely unconsidered audience that will embrace your solution even more. The high cost of getting your first customer and even the higher cost of getting your product wrong, can be significantly reduced by the lean methodology.

Ways to save on startup business costs

After considering a lean startup approach, it’s important to explore specific areas where you can save your startup unnecessary outgoings during its infancy. Reducing startup costs will maximise your profit and further contribute to the success of your startup. In the early years especially, you can’t afford to be frivolous with your finances. Here are some additional ways to keep startup costs down, without compromising on product quality, operational efficiency, or customer satisfaction:

  • Product and service offering
  • Equipment
  • Banking
  • Software
  • Marketing
  • Recruitment
  • Funding

We’re going to go into more detail on each so keep reading…

Product and service offering

Don’t try to do too much. Focus on the products/services that offer the best profit margins. If your startup is still in its infancy, consider testing your idea(s) through a minimum viable product experiment as quickly and cost-effectively as possible. By building too much, too soon, you could make your solution hard to validate. Even worse, you risk making your customers work at digging out the true value of your product/brand. Once your customer base builds and subsequently your profits, you can look to expand your offering.

Equipment

Depending on your type of business, leasing equipment is a great way to save money. Avoiding hefty investment in equipment (such as business vehicles) releases funds for essential activities during its early years, for example, customer acquisition activities such as sales, marketing, and customer experience. While owning your own equipment might save money in the long term, there will be no long-term option for your business if you can’t establish a customer base early on.

  • Leasing Vs Buying: Key questions to ask yourself

    • Will this piece of equipment always be required by my business? Could my product change following customer feedback? A new business strategy?
    • Does this piece of equipment significantly improve the quality of my product? 
    • Does it speed up the production/delivery process?
    • Can the above only be achieved with a state-of-the-art model, or can a more affordable alternative offer the same results?
    • Would I be responsible for maintenance?
    • Would my equipment require upgrading down the line? Would this be via modifying current equipment, or require complete replacement?
    • Am I aware of the different tax implications of leased and owned equipment?

    While ownership tends to have a cheaper overall cost, younger businesses that are focused on growth are likely to be better suited to a ‘try before you buy’ lease approach. Always evaluate the equipment in question and your requirements of it – if it’s essential to your business and won’t require frequent replacing then buying outright is worth consideration. You will also be in control of how, when, and who fixes it should it go down and your production is at a standstill. Every business is different – ensure you’re clear on your figures before making any long-term investment decisions.

  • Second hand equipment

    Previously owned office equipment can provide a budget-friendly option for startups. Office furniture, computers, printers, etc, can be purchased for a fraction of the price. However, with the saving can come significant risks. Used equipment is sold as-is, typically it hasn’t been inspected and doesn’t come with a warranty. You won’t know its history, how well it’s been maintained or any previous problems. Refurbished equipment is a less risky option as it’s inspected and reconditioned to ensure it’s up to the seller’s standards before it is offered for sale. It might come with a limited warranty or offer the option to purchase a warranty with it. You could even receive a full report of its condition, depending on what item it is. While less risky, you should still find out exactly what’s involved in the refurbishing or reconditioning process.

    There are also strict legal responsibilities around re-supplied products. You might not know if they’re being adhered to by the person you purchase from. This can be a risky choice, especially if your equipment could pose a health and safety risk to yourself and others.

    (For those considering buying new machinery for use at work, you can access the government’s short guide to the law and your responsibilities. A quick Google will also direct you further to helpful resources specific to your business requirements.)

Premises

After salaries, premises are usually a business’s biggest overhead. Depending on the nature of your business, you might not need work premises. Instead you might be able to run your business from home or opt for a co-working space.

Be aware that if you do opt to run your business from home you still need to have proper insurance and permissions. Permission could be required from your:

  • mortgage provider or landlord
  • local planning office – e.g. if you’re planning on making major alterations to your home
  • local council – e.g. if you’re going to get lots of customers or deliveries, you want to advertise outside your home or if you need a license to run your business.

Banking

Businesses can save money when starting up by making use of free business bank accounts. Many digital-only banks such as Tide, Starling and ANNA Money are quick and free to set up, and can work out more cost-effective than the big High Street banks. You may also find through their mobile/online banking platforms that you’re able to more efficiently manage bookkeeping and accounting tasks – e.g automated invoicing. This might save you money investing in dedicated software or, alternatively, help you get the most out of your software packages, eg. integration with your POS systems and accounting software

On the other hand, there may be financial products – such as overdrafts, loans and credit cards – that you’ll want to have access to. These products are often unavailable through the digital-only banks. In addition, High Street banks may be able to offer in-branch services and account management support that you’ll benefit from when starting out. Weigh up what you need and what you’re willing to spend.

Software

Partnering with the right software provider(s) for your business can significantly improve processes to turbocharge your startup’s efficiency, productivity, and rate of growth. But how do you know it’s the right fit for your business? Before committing to lengthy contracts, consider making use of free software programmes and trials to find the right fit for you. You might not feel the business benefits until software has fully bedded in so ensure you allocate time for this. As you grow, work closely with your chosen provider/s to effectively onboard and train your staff. As you grow, so will your requirements so bear in mind that while free options are a great way to save the pennies at the start, keep the bigger picture in mind and ensure you’re looking at software that can grow with your business. Some examples: 

  • Google Workspace – A collaborative office suite, storage, email and calendar in the cloud. Read and write documents 24/7 on all devices without limitations and concerns around making backups. Free trial available for 14 days, with its Business Starter plan costing £4.14/user/month which includes a custom and secure business email, 100 participant video meetings, 30GB cloud storage per user, security and management controls as well as standard support.
  • Wave – Free invoicing and accounting software with credit card processing and payroll services.
  • Hootsuite – Manage your social media accounts on one platform. Its free plan offers more than enough tools for a small business that is just starting their social media marketing journey.
  • SEMrush – Learn about your website and your competitors’ websites by simply entering a URL and running a search. Review the data to inform SEO activity to grow your online visibility. 50+ tools on SEO, content marketing, competitor research, PPC and social media marketing to help you attract and grow your audience online faster. Free trial available.
  • Google Tag Manager – A free tool that allows you to manage and deploy marketing tags (snippets of code or tracking pixels) on your website (or mobile app) without having to modify the code. It’s a great bridge between marketers and developers. You can use tags for all sorts of purposes, including scroll tracking, tracking form submissions, remarketing, or tracking how people arrive at your site.
  • Hubspot CRM (Customer Relationship Manager) – Keep track of your customers, prospects, suppliers as well as your call, email and meeting history. Assign tasks to your team e.g. following up on a certain date, log emails by integrating with Gmail and more. Strong focus on sales and marketing. “Free forever” plan available, very scalable with a user-friendly dashboard for reporting performance.

Marketing

For any startup business, marketing is crucial in order to raise awareness of your business and acquire new customers/generate sales. However, marketing costs can quickly add up if you’re not savvy with how you invest your funds (one of the reasons you need to have a well-planned marketing budget). Luckily, there are plenty of low cost ways you can market your business…  here are some of the most notable areas where you can keep costs low whilst still delivering results:

  • DIY websites

    DIY website builders like Squarespace and Wix are a cheap and easy way to build your online presence, whilst Shopify is a great solution if you’re launching an e-commerce business. Using an out-of-the-box option can also be a lot more cost-effective to manage in the long-run as you’ll be able to implement changes yourself – without having to bring in expensive developers or web agencies to update the design or content. 

    Whilst there are plenty of readymade templates you can utilise so your website looks slick and professional, the downside is that may not have the custom functionality or unique look/feel that you want. However, in the early days of your business you’ll want the ability to go-to-market quickly and be more agile. On this point, it may be worth looking into whether your business could sell its products on marketplace websites such as eBay and Amazon

  • Digital marketing

    Using digital marketing channels to promote your business is generally lower-cost but also allows you to more closely evaluate performance. That means you can quickly identify which activities are generating the best results and move your budget accordingly and/or rejig your campaigns. If you can see, for example, that Google Ads (paid search) is the source for the majority of your sales it makes sense to spend money on this channel. Equally, you can reduce wastage by only targeting specific audiences who you know are likely to buy your products. This is especially relevant to social media advertising where you can promote your business on people’s feeds based on their profiling information or, even better, by retargeting people who’ve been to your website. 

  • Email marketing

    Email marketing can be an effective and inexpensive way to drive sales and leads, grow brand engagement, increase customer loyalty, promote events, grow your fanbase and conduct research. You’ll need to consider what strategies you’ll undertake in order to grow your email database, but once you’ve grown your subscriber list it represents one of the cheapest ways to get your brand in front of people regularly. Plus, there are a number of low-cost email marketing software options – with the likes of Mailchimp and HubSpot also offering free plans.  

Recruitment

Apprenticeships can be a cost-effective approach to recruitment. You can get help from the government to pay for apprenticeship training. The amount you get depends on whether you pay the apprenticeship levy or not. You pay the levy if you’re an employer with a pay bill over £3 million each year. There are also other benefits to apprenticeships – it can be a productive and effective way to grow talent and develop a motivated, skilled and qualified workforce.

Additionally, internships are another cost effective recruitment solution. An internship is a fixed, limited period of work experience offered by a business or organisation to a student, graduate or someone looking to increase their experience in a particular field. You should legally pay minimum wage to your intern if they count as a worker – see the UK Government’s advice on employment rights and pay for interns.

Funding

Don’t forget there are other ways to save on startup costs such as applying for startup grants. Finding small business grants in the UK requires investigation and is dependent on a number of factors. But there are grants available that you don’t have to pay back. 

 

These are just a few ways you can save on startup costs. Even when your business grows and expands, it’s important to continue reviewing outgoings and what value they bring to your business. Have your requirements changed? Are you on the best supplier contracts? Is there a new platform or piece of equipment that is worth investigating? A thrifty approach to running your business while knowing the areas worth investing time and money into can help it reach its financial goals sooner.

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