Frugality in a Start-Up

A lot of start up companies claim to be “on a shoestring,” have “tight resources,” “cutting corners,” and the like. Indeed, the frugal start-up is one encouraged by CEOs, advisors, investors, and analysts. But when does being frugal make sense versus cutting a corner you can’t afford to cut? At Comcate we have faced this predicament many a time. For the most part, our frugality has allowed us to grow under tight capital. We can devote more resources to sales and product development and less on miscellaneous overhead. But this shoestring mindset has backfired, too. A new employee recently got an inexpensive monthly cell phone plan, promptly exceeded his minutes, and we had a $230 phone bill for one month. And other times the debate over how to save a dollar or two on one thing or another has resulted in us being able to accomplish that thing in the amount of time we spent debating. Based on my experience, here are a few quick things you do want to think about how you could be creative in financing the activity or service:

  • All office equipment – multi-purpose all in ones, laser printers over ink jet (ink costs will catch up with you), a cell phone for both office and the road, are just some of the ways you can be frugal in the office. This is an easy category.
  • Southwest Airlines – Period. On Southwest they count “miles” as segments. So you could fly up and down to LA earning segments and then use those segments to fly across the country on Southwest to Hartford, Conn. If you operate in an area near a Southwest airport, and an investor asks “where is your market?” just say “Anywhere Southwest flies.”
  • Generic sales material – I used to try to customize each handout and sales literate to the prospect I was visiting. Looking back, I see a lot of wasted dollars and hours at Kinkos trying to customize each brochure. Do it once, make lots of copies, and don’t worry about changing the logo at the top to that of the prospect.

Here are some things you don’t want to be thrifty on:

  • Business cards – A first impression means everything and this is your first print impression. Make it good.
  • Laptop – A sluggish system will cost you an untold number of hours. Get a high performing PowerBook and consider it done.
  • In-person demo’s – WebEx or Placeware is good for training and inter-company communication, but always meet the potential client in-person. Resonating with someone has more to do with kinesthetics than anything else.

I left much off this list, just some quick thoughts. In your experience, where have you found frugality work or not work?

2 Responses to Frugality in a Start-Up

  1. Chris Rako says:

    I believe you can tell a lot from a company website. It’s another one of those first impressions that you can’t take back.

  2. Will Pate says:

    As my partner and I grow GoodBasic, we find it hard to leave our frugal ways behind. We both started as bootstrapped proprietorships and kept costs razor thin to grow. I don’t have the numbers on me, but I’d venture to guess we’ve each spent between 5 and 10 percent of gross on operating costs – and all I can think about are the dollars I could have saved if I had hindsight’s 20/20.

    Our penny-pinching has paid off. We’re in a position to make our first business paid capital acquisition – our own dedicated server. We can pay for lunches and coffees with prospects and partners. We can pay to outsource development to deliver more custom work.

    At the same time, we’ve forgone many things. We don’t pay ourselves and both keep side jobs to pay living costs, so that everything the business makes it can keep. You won’t find a picture of me in a suit, because I don’t have one yet – unless I’m sure that it’s a prerequisite to a particular sale I just can’t bring myself to do it.

    When it comes to making a decision now, I look at all my options. I don’t see it in terms of making cheap vs. costly decisions, rather smart vs uneducated ones. One of my biggest mistakes was purchasing a laptop that was a portable media center. I don’t need that, I spend 99% of my time reading and writing! I thought I was making a smart decision, but I failed to track my typical computer use and buy to reflect that. Now I know that a 12” iBook would fit my mobile lifestyle perfectly.

    In another example, we’re using SkypeOut to make dirt cheap long distance and international calls. Voice quality suffers a bit, but people seem impressed at my business savvy when I tell them how for that little trade off I’m calling saving real money. I could have bought a long distance plan, but it still would have cost about double the estimated cost of Skype’s one way VOIP.

    Chris is right: design is one thing you never want to sacrifice. It’s the public face of your company, it’s how your website works, it’s how your business card and marketing materials look on someone’s desk, it’s how your software or device interacts with the user. We’ve been very conservative with the website for GoodBasic (apologies for the self linking), but only because we can’t find one we’re really happy with yet.

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