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5 Things Startups can do to Reduce Cost
29 April 2019
For a startup company, resources are always going to be stringent. You’re in that phase where your revenue streams are still not secured but the costs are already assured. It’s like going fishing; you’ve already spent on your new rod, fishing line, and the bait, but you’re still not sure if you are catching any fish. ‘Catching the fish’ has always dominated conversations among entrepreneurs and on the agendas of meetings. We must realize that ‘Catching the fish’ is a gradual process, but let’s take a moment to analyze our rods, lines, and baits (Our costs). Are our expenses sensible in gaining a strategic advantage? Is it really necessary to cut these expenses?
Cost reduction for startups is less of a strategy for profitability and more of a strategy for survival. Here are few pointers to keep your startup’s costs down:
Track Your Expenses
The first step in solving a problem is realizing that there is one; similarly, the first step in reducing costs is realizing where your money is being spent on
look into your financial statements and perform an in-depth analysis. For that you have to ask these questions: What are the major areas that are taking the biggest slices of your cost-pie? Can you eliminate a significant portion of these costs? What about your small office expenses? Are they not being given the attention they deserve?
On the same note, I was talking to an entrepreneur from Chennai, India about how he minimized costs in his stationery business. He told me, “When I started tracking even the minute details of my expense, I figured that almost 9% of my total operating expenses was because of over-stocking (of books and stapler pins) and its maintenance.” He told me that he duly corrected it and had brought his operating costs down by 9%!
Check your suppliers
Suppliers are one of the most important stakeholders of your business and your efficiency and profitability depend a lot on them. Give a special focus on choosing your suppliers. One of the founders of Tune Gear Electronics and Technology (a Kathmandu based Telecommunication Service Company) shared his experience with me: “We needed to install solar panels of 2000 watts in Manang to establish a telecommunication network and we had to pay for each watt to acquire the solar panels. We met a supplier who was willing to sell us at Rs. 142 for each watt, then upon further research, we met another supplier who was willing to sell us for Rs. 100 for each watt, and finally we found out that we could get it for only Rs. 82.” One thing we can all learn from this story is that startups should always maintain a wide range of suppliers and compare their products. When you have a basket of suppliers to choose from, you already have an advantage. But it is not only the price at which they offer their products, but you should also check if your suppliers provide early credit discounts and their credit periods.
“Startups should always maintain a wide range of suppliers and compare their products. When you have a basket of suppliers to choose from.”
Make the best use of technology
If you haven’t thought of adopting some of the free (or cheap) and new technologies of your respective industry, it’s as good as living with sticks and stones. Let’s say you want to maintain a database of your clients, finances and so on. Working with pencil and paper for things you can do with the use of Information technology can only add costs. No matter how small your database is, take advantage of tools such as Google Sheets or Grubba that are free. The usage of technology reduces overhead costs significantly and increases efficiency.
Outsource or hire contract officials
As a startup, you cannot do everything on your own, and there will be areas where you’ll lack expertise and hiring permanent staff for the job can be very costly. When we hire a contract official or outsource, we not only hire or outsource the work to the best official, but our day-to-day involvement would also be minimized. This, in turn, will cut our costs significantly.
“As a startup, you cannot do everything on your own, and there will be areas where you’ll lack expertise and hiring permanent staff for the job can be very costly.”
Outsourcing comes with its own pros and cons. Many times outsourcing can be a very risky affair because sensitive company information must be shared and the dependency is solely on the third-party to complete the task.
Think if you really need an office space
In the informational age, we have everything we need in a computer. We have database software to manage our data, we have pages and notes to write down important information, and we have e-mail and internet services to communicate, make a purchase and learn skills we haven’t mastered yet
Rent accounts for a large portion of your fixed costs and many startups struggle to pay off their rent. Many successful businesses, both national like Sasto Deal and international like Microsoft, started from their garages. So unless it is really necessary, do we really need to rent an office space?
One final advice before I bid adieu: Saving time is as important as saving money. Startups need to survive new market trends, unexpected government regulations and still achieve growth. If you save time, plan your operations ahead and most importantly, have a ‘Plan B’, then saving costs will become a piece of cake.
“Both national like Sasto Deal and international like Microsoft started from their garages. So unless it is really necessary, do we really need to rent an office space?“