Some costs apply to all startups. Every small business needs to register its name and apply for an ABN. All new businesses need a website, regardless of whether they decide to act on that requirement.
While it’s simple enough to generalise about basic startup expenses, every business is different when it comes to operating costs. A startup that specialises in outsourcing copywriters is not going to have the same core business costs as an online furniture store.
The key to keeping operations costs down in a startup is to be ruthless in getting rid of expenses that don’t relate directly to the bottom line. Get the business running at its basic level first; worry about bells and whistles later.
PR Help’s McGowan claims she was able to start her business with a very limited outlay largely because of its service-based nature.
“It’s professional services, so what you’re selling is yourself. I would have liked to have spent more and set up a beautiful office, but I basically realised that wasn’t necessary,” she says. “I didn’t want to have high overheads. I just thought ‘I’m not going to add overheads where they’re not necessary and where they don’t deliver value to my clients.’”
For Custom Printed Bags and Boxes’ Cassidy, sorting out operation costs was more complex. Being a bespoke packaging retailer, she was lumped with the task of finding suppliers that could fill custom orders in low quantities to match her limited startup budget.
“We do very low minimums – a minimum of 100 for most designs,” she says. “We have two manufacturers in China who I begged to do the minimum. My competitors do 3,000 minimum boxes. Sometimes I find that they’re not that much dearer than me, anyway, per box. That’s my unique selling point.”
She’s quick to point out, however, that her initial outlay for the business was under $1,000 largely because she never had to keep any stock. Customers give her specifications that she passes directly on to the suppliers. All the business needed, apart from its accommodating suppliers, was the website she created for free with hosted design service Weebly.
Lisa Turner, owner and founder of Hullubullu children’s wear, also started her business with only the most basic costs required.
“I spent $500 or $600. That gave me enough money to buy the sewing machine and some fabric,” she says. “Because I was making it myself, whatever I could make during the week, we could just sell on the weekend, and the profits went back in [to materials]. That’s how we were able to grow the business.”
From the profits gained out of spending each day of every weekend for 18 months selling clothes at local markets, Turner was able to open a small shop in Newtown, and then another space in Bondi. Only then did a website surface, and even now it’s too simple to boast an online shopping cart.
She claims that the biggest hurdle in starting the business was finding the bond for its first retail space, as no banks would lend them money to make it happen. On the other hand, she’s glad of the financial adversity encountered early on – it meant that everything they spent went back into keeping the business afloat. Additionally, the mistakes they made cost them less than they could’ve done with a bigger budget.
“Because we didn’t have much money, we couldn’t invest in a lot of stock, so what we did invest in, we had to invest small,” she says. “Instead of buying, say, a hundred meters of fabric, thinking it was going to walk out the door, you could only buy 20-30 metres. If you made a mistake, and the market didn’t like it, then it was a small mistake to make. A lot of people will invest a lot of money into something they think might work, and then it doesn’t.”
The real trick in a lean startup is to be absolutely merciless in narrowing down the costs that are most crucial to basic operations. It can help to take advantage of personal networks – any assistance that you can get for cheap or free should not be taken for granted. Custom Printed Bags and Boxes’ Cassidy sourced her web imagery from a friend who is a professional photographer. Any obstacles encountered with web design were smoothed over by another contact with some HTML experience. The finer visual elements on the website required a graphic designer, so this became an expense to capitalise on the help she received gratis from friends.
“Utilise everyone and anyone that really wants to help you. Trust me; friends and family want to help,” says Cassidy. “Also, don’t put anything on credit. Just save up for a year. Then, if it doesn’t work, you’ve lost $5000, but it’s not going to be an ongoing problem for you a couple of years down the track.”
Read Step 6: Marketing.
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