Launching a Startup? Where to Skimp and Where to Spend.

Wu-Tang Clan probably didn’t know they were writing a guiding principle for entrepreneurs when they released “C.R.E.A.M.” (What? You don’t get your entrepreneurial inspiration from 90s rap songs?) When you’re launching a startup, cash really does rule everything. According to CB Insights, the second biggest reason for startup failure -- behind a lack of market need -- is a lack of cash. And that’s the case no matter if your company is venture backed (hello, burn rate) or bootstrapped.

We know a thing or two about cash at Launchpeer. When we started, we were nearly $35,000 in debt. 12 weeks later (and after a hard look at our systems and priorities), we were a 7-figure company. We talk to early-stage founders about money literally on a daily basis. And we understand firsthand that making financial decisions is one of the hardest parts of launching a new business. How do you prioritize where to spend and where to save, especially if you’ve never done this before?

While we know one-size definitely does not fit all for startups, there are a few key places where you should spend your money and a few others where you can skimp a little.

Here are 3 key places to spend:

Legal Advice

Your business needs a solid foundation, especially if you’re looking to scale. While you can certainly Google your way into business, we highly recommend hiring a trusted attorney (ideally one who’s worked with startups or within your industry) to help you with things like trademarks, patents, and contractual agreements. Lawsuits aren’t fun... or cheap. By allocating some funds to get your venture set up properly the first time around, you’ll lower the risk of unexpected legal costs down the line.

Accounting

Unless you’re a QuickBooks wiz, we think hiring a CPA or accounting firm is well worth the expense. Not only will it free up your time to actually build the business (and as the founder, your TIME is money), it means you have a trained professional keeping watch over your cash flow, expenses, and payroll. Accountants can also help you figure out tax deductions and write-offs that you may not know about off-hand, especially if they experience with startups or within your specific industry.

Development

Development is tricky because pricing and quality are all over the map. While expensive doesn’t always mean better, you usually do get what you pay for when it comes to development. We hear from countless early-stage founders who chose the cheapest possible option just to get to launch, only to end up paying double or triple that amount to have everything rebuilt when the output isn’t up to snuff. When it comes to development, the saying “buy once, cry once” rings true; you’ll likely want to pay a bit more in the beginning to have fully functional technology with a solid user experience.

Here are 4 places where you can save:

Office Space

Sure, everyone loves the idea of having a super sexy startup space, but when you’re just starting out, the swanky office isn’t essential. Consider working from home for as long as you can to save money (plus, if you own your house, you can deduct home office expenses on your taxes). Rent conference room space or head to a local coffee shop for face-to-face client meetings. Or, sign-up for a part-time coworking membership to get out of the house, have a physical business address, and meet other entrepreneurs. If you already have a team of employees and definitely need an office, consider looking beyond the hip downtown neighborhoods to find lower rent rates, or find another small company to do an office share.

Amenities & Perks

While we’re on the topic of office space, you’ll obviously need office amenities - everything from desks and chairs to printing and a coffee machine. Consider buying used items to save money. Check Craigslist, shop at office and restaurant surplus stores, or make the trip to a nearby IKEA to outfit your space on the cheap. We call this aesthetic “eclectic,” “worldly,” and “paychecks are better than fancy chairs.”

Office perks are another place to save money while you’re early-stage. We’re not suggesting you don’t provide perks -- they’re one of the best ways to foster culture and retain employees -- but you can get creative with these in order to cut down cost. Consider offering work-from-home days, hosting monthly office potluck lunches instead of catering meals, or doing free or low-cost off-site activities like volunteering, team bike rides, or group seats at mid-week sporting events.

Employees

Hiring, on-boarding, and training new full-time employees can be expensive, especially if your company is relatively new and you don’t have clearly defined roles and projects. Figure out which tasks you really need help with (because, no, you shouldn’t be doing everything) and hire contract workers or freelancers so you’re only paying for time spent on set projects until it makes sense to build a full-time team.  

Software

When you’re just starting out, you don’t necessarily need all the fanciest, fully-featured software in your toolkit. Luckily, there are tons of free and low-cost options out there. Use Google Apps for your business email, calendar, and file sharing (it’s inexpensive for small teams at $5 per user per month). Use free design tools like Canva instead of splurging on Adobe software. Consider free conference call sites like UberConference or Google Hangouts. We could dedicate an entire blog post just to tools. (Actually we will -- stay tuned for that in the coming weeks)!

Part of the beauty of being an entrepreneur is that, ultimately, YOU get to make all of these decisions. If you really want that fancy-but-freaking-expensive desk, that’s your call. If you decide you can create your own website, you can do that. If you want to price shop and negotiate for services, you have that power. Just keep in mind that behind all of these decisions, you need to balance quality and efficiency while also keeping balanced books.

Want more advice while launching your startup?

Check out our podcast or schedule a 15-minute call with our team!

Allyson Sutton