Saving Money On Startups

Jason Calcanis has written a post with almost twenty ideas for saving money in a startup. I agree that keeping the costs down is a critical part of doing a startup right, both because it allows the founders to dilute less and because it creates the right culture for the long term.

There are several of Jason’s suggestions I’d like to second and talk about a bit.

Don’t buy a phone system. No one will use it. – I remember a startup that we helped to incubate back in 1999 at Flatiron that made the decision to give everyone cell phones instead of buying a phone system. Today, you don’t even need to do that. Everyone has a cell phone. Just make sure you get good cell reception in your office (if you have one). I wonder if there is a repeater that you could put into an office that works with all the major cell networks to ensure good coverage. The new cell phones that allow wifi phone calls like my t-mobile curve are also making that less of an issue. Jason suggests that you can save $500/year/person by avoiding a phone system. That can add up to a lot of money over time.

Rent out your extra space.
– Our portfolio company Targetspot looked long and hard for 3-4,000 square feet last year and could not find anything that worked in the price range they could afford. Instead they took 7,000 square feet and are subletting a bunch of offices and cubes to other startups. Their net rental cost is much lower as a result and they also get the benefit of collaboration between other entrepreneurs and developers. Etsy has done the same thing with Make Magazine and a small group from Burda Media. There are some downsides to this approach. You have to collect rent, if the startup world got really bad (like 2000/2001) you could end up with more space than you need and nobody to rent to, and you could end up with subtenants that you don’t get along with. But even with all these downsides, I think this is something startups should consider in markets where office space is tight and rents are high.

Outsource accounting and HR – As Jason says, this is a no brainer. Here in NYC, we generally recommend a company called Ambrose. They are a PEO. Your employees technically work for them and you pay them to run all HR (including salaries and benefits) for you. I think there are plenty of high quality PEOs to choose from and all startups should use one.

Don’t waste money on recruiters. – I can’t think of the last time one of our companies hired a recruiter. I am sure it’s happened and maybe recently, but it’s not something many of them do anymore. LinkedIn, in particular, has become an amazing way to recruit on the business side. There are times when it does make sense to hire a recruiter, particularly for a specific skill set that the company doesn’t have in its extended network. Those times seem to be fewer and farther between these days.

Really think about if you need that $15,000 a month PR firm. – There are some really good PR firms out there and if you can get one of them to work with your company, then it may be worth considering it. But a mediocre PR firm is not worth it for sure. I encourage our portfolio companies to hire a person inside the company to be an "evangelist". That job includes blogging actively, reading and commenting and linking to other blogs, reaching out to the media and industry analysts and gurus, going to conferences and events, and generally getting the word out. That person can be young and not particularly expensive, certainly nowhere near $15,000 a month. And they have two things that a PR firm cannot offer. They work for you and they represent your company exclusively.

And I’ll add one more cost saving idea because Jason asked people to do that.

Hire "utility infielders" in the early days – Hire people who can do many things in the early days of a company. Charles Smith at TACODA and Etsy and AT at Zynga both come to mind. They are people with a number of skills who have spent a long time in startups and can do everything and anything that’s required. You can’t afford to have specialists in a startup. Hire utility infielders.