Anyone who is familiar with startups knows how important it is for them to stay lean.
There are countless startups that have failed from spending too much too fast and investing in the wrong parts of their business.
While there is no one-size-fits-all solution to this problem, there are some general strategies that entrepreneurs should follow to stay lean.
1) Test Products & Services Thoroughly
Many entrepreneurs make the mistake of not thoroughly testing products and services before investing in them. Entrepreneurs should be certain that customers both want what their selling and that they are willing to pay for them.
Small “bets” or tests of customer reaction can pay off long-term and help avoid wasting precious time and money. One easy way to avoid over-investing in an unproven product is by holding off on hiring full-time employees until it is absolutely essential.
An example of a company that practiced this ‘lean startup’ concept is Instagram. Instagram had less than twenty employees when it was purchased by Facebook for $1 billion. While not every company can build a billion dollars of equity on the backs of less than twenty employees, they can exhibit conservatism when deciding on how many employees to hire on full-time and when the hiring happens.
2) Utilize Technology that Lowers Costs
I’ve said it often on this site: technology has made it easier than ever to launch a successful startup. The biggest advantage that entrepreneurs have today is the ability to connect with others all over the world as long as they have an internet connection.
A lean startup should take advantage of technology to keep costs low. Instead of traveling to potential clients and spending thousands on travel costs, consider taking advantage of Blue Jeans Secure Video Conference software that allows people to hold meetings with people anywhere in the world.
Reducing travel isn’t the only way technology can help startups be lean. Other technology, such as those that I described in my post 5 Tools to Help you Manage a Small Business from anywhere in the World, can help you save money by not paying hefty software licensing fees. There are certainly situations where expensive software is needed, but ideally a startup in it’s early stage of life can avoid investing in those resources until a later time.
3) Avoid Real Estate Rental unless Absolutely Necessary
Real estate is sometimes an integral part of a company, especially for a retail company that depends on shoppers stopping by the store. In general, though, startups should avoid investing in real estate until they absolutely have to.
The negative of real estate for a startup is that startups are typically experiencing a great deal of change. Real estate landlords are looking for long-term commitments, so this could pose a problem down the road if a startup signs a lease for office space that ends up not being needed.
Instagram is also a good example of this lean startup strategy. They had no office space and employees worked from home. Despite not having office space they were still able to sell their company for a billion dollars. If at all possible it would be ideal to follow their lead and avoid having office space in the early stages of a startup.
One final note on this is that employees will need to be held accountable if they are working from home full-time. This can be accomplished by giving them a high level of responsibility and measurable goals.
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Do you have any suggestions for how startups can stay lean?
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Photo by Betsy Weber
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Definitely work from a home office/garage if at all possible. Was a key to my early success as office space would have been a financial burden for sure.
Kyle James Thanks for sharing your thoughts, Kyle. I think most successful entrepreneurs would agree with you that minimizing real estate expenses can be a big win.
There is a benefit in technology startup where you can create a product relatively cheaper nowadays and test it then iterate. It’s important to get the product out sooner to find the product/market fit and iterate based on how the users will use the product.
If you haven’t read about “the lean startup method” you’d probably like it: http://theleanstartup.com/principles
BudgetsAreSexy I know there is a book called “The Lean Startup”, but I haven’t read it. I did read a book recently called “all in startup” that I am absolutely obsessed with!
A great way to “stay lean” would be to have customers commit money to a product or proof of a concept before it is built.. This way you are not investing a whole bunch of capital without proof that the market will pay for your idea..
This can be difficult and take longer but can be a way to stay lean..
Cool article DC, very entrepreneurial of you :)!
It seems pretty common and acceptable now that you don’t have an office. You can meet at the client’s or take them to lunch, even rent a meeting room and spend way less than a monthly rent.
Jason Vitug I agree 100%. It’s incredible the opportunities available today.
RFIndependence Especially for startups because there are lower expectations of having expensive real-estate and higher expectations for flexibility. It’s definitely different than what clients/customers expect of mature companies.
mycareercrusade Great point! That’s the ideal way to launch a startup, and I actually have a post that focuses on that very concept in just a couple weeks here.
Thanks for the kind words!
That’s true, by using technology like video conferencing software, you can not only reduce cost and time spent on travelling, but also improve productivity.
There are many such video conferencing software providers like EZTalks, GoToMeeting, Webex etc
Reference:
http;//www.eztalks.com
http://www.gotomeeting.com
http://www.webex.com