How to save money running a startup (17 really good tips)

NOTE: I’m no longer blogging, but rather sending my thoughts, advice and insider information to my friends via email.

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[ UPDATE: This post caused some big debate over at TechCrunch. I respond here with the blog post titled “can you work at a startup and have a life?” I updated #11 to make my point a little less harsh, more true to my true feelings ]

The HowTo team at Mahalo has been an amazing surprise effort. We didn’t plan on making howto articles, but when we built various how to search pages we realized that many howto articles were, well, lacking. So, we started building select ones where we thought we could help. This one on how to save money is very good.

I’ve got a bunch of tips on how to do this for business. Among them:

  1. Buy Macintosh computers, save money on an IT department
  2. Buy second monitors for everyone, they will save at least 30 minutes a day, which is 100 hours a year… which is at least $2,000 a year…. which is $6,000 over three years. A second monitor cost $300-500 depending on which one you get. That means you’re getting 10-20x return on your investment… and you’ve got a happy team member.
  3. Buy everyone lunch four days a week and establish a no-meetings policy. Going out for food or ording in takes at least 20-60 minutes more than walking up to the buffet and eating. If you do meetings over lunch you also save that time. So, 30 minutes a day across say four days a week is two hours a week… which is 100 hours a year. You get the idea.
  4. Buy cheap tables and expensive chairs. Tables are a complete rip off. We buy stainless steel restaurant tables that are $100 and $600 Areon chairs. Total cost per workstation? $700. Compare that to buying a $500-$1,500 cube/designer workstation. The chair is the only thing that matters… invest in it.
  5. Don’t buy a phone system. No one will use it. No one at Mahalo has a desk phone except the admin folks. Everyone else is on IRC, chat, and their cell phone. Everyone has a cell phone, folks would rather get calls on it, and 99% of communication is NOT on the phone. Savings? At least $500 a year per person… 50 people over three years? $75-100k
  6. Rent out your extra space. Many folks have extra space in their office. If you rent 5-10 desks for $500 each you can cut your burn $2,500 to $5,000 a month, or $30-60,000 a year. That’s big money.
  7. Outsource accounting and HR—such a no brainer.
  8. Don’t buy everyone Microsoft Office–it’s too much money. Put Office on three or four common computers and use Google Docs.
  9. Use Google hosted email. $50 or free per user…. how can you beat that?!?! Why screw with an exchange server!?!?
  10. Buy your hardest working folks computers for home. If you have folks who are willing to work an extra hour a day a week you should get them a computer for home. Once you get to three hours of work a week from home you’re at 150 hours a year and that’s a no brainer. Invest in equipment *if* the person is a workaholic.
  11. Fire people who are not workaholics. don’t love their work… come on folks, this is startup life, it’s not a game. don’t work at a startup if you’re not into it–go work at the post office or stabucks if you’re not into it you want balance in your life. For realz.
  12. Jura espresso machineGet an expensive, automatic espresso machine at the office. Going to starbucks twice a day cost $4 each time, but more importantly it costs 20 minutes. Buy a $3-5,000 Jura industrial, get the good beans, and supply the coffee room with soy, low fat, etc. 50 people making one trip a day is 20 hours of wasted time for the company, and $150 in coffee costs for the employees. Makes no sense.
  13. Stock the fridge with sodas—same drill as above.
  14. Allow folks to work off hours. Commuting sucks and is a waste of time for everyone. Let folks start at 6am or 11am and you’ll cut their commute in half (at least in LA).
  15. Go to each of your vendors every 6-9 months and ask for 10-30% off. If half of them say yes you’ll save 5-15% on fixed costs. People will give you a discount if they think they are going to lose the business.
  16. Don’t waste money on recruiters. Get inside of linkedin and Facebook and start looking for people–it works better anyway.
  17. Really think about if you need that $15,000 a month PR firm. Perhaps you can get a PR consultant to work on 2-3 projects a year for $10-15k each and save 75%. More PR firms are wasted half the year while you build up your product anyway.{I’m going to add a couple more of mine as I remember them }
  18. Outsource to middle America: There are tons of brilliant people living between San Francisco, Los Angeles, and New York who don’t live in a $4,000 one bedroom apartment and pay $8 to dry clean a shirt–hire them!

Anyone else have startup money saving tips? I will post them below as they come in…

  1. Peter Rojas of RCRDLBL: You probably don’t need to rent an office, at least not at first. It’s really easy to collaborate online, and unless you have a really compelling reason for everyone being in the same place at the same time, you should save your money for as long as you can get away with it. Plus it’ll force you to hire people who don’t need to be micromanaged.
  2. Pat Phelan gives a ton of advice including: a) No company cars, b) put your HQ in the burbs to save 50% on rent, c) Blog instead of hiring a PR firm, d) let one person book flights since it’s an art, e) keep conference calls to a minimum (amen to that!).

98 thoughts on “How to save money running a startup (17 really good tips)”

  1. Keep a close eye on your cash flow. Make sure that you make more money than spend. Even if you have to borrow initially, calculate when your inflow will become bigger than outflow.

    Another point is to use creative leverage to your advantage through cross-promotion (cross-marketing) with non-competing businesses. This idea can be expanded further, for example sharing office, staff and doing other activities in a cooperative way.

  2. $5,000 espresso machine? I love it.

    However, by the 90/10 rule you can get one (almost) as
    good for much less.

    And a $5,000 espresso machine is going to offer a strong
    incentive for one of the founders to make sure the
    business fails, so s/he can end up taking the machine
    home in a couple years. Don’t tell me you didn’t have
    that thought in the back of your mind. I sure would.

    Also, one room studios do not cost $4,000 in San Francisco.
    Nor do people working at startups in SF need to dry clean
    their shirts. That is just ridiculous.

    Macs/monitors/meetings/outsourcing/Google Docs/no phone system:
    absolutely, 100% spot on.

  3. “Outsource to middle America: There are tons of brilliant people living between San Francisco, Los Angeles, and New York who don’t live in a $4,000 one bedroom apartment and pay $8 to dry clean a shirt–hire them!”

    I run a startup out of SF and pay $1000/month in rent, shop at farmers markets and live comfortably. I’m not saying that nobody meets your stereotype, but it’s definitely not the norm.

  4. “Buy Macintosh computers, save money on an IT department”

    Pfffft. Yeah, and don’t forget to buy puppies too. Puppies
    make everyone happy, therefore they will work harder.

  5. Buy Macintosh computers, save money on an IT department.

    More like spend gratutious amounts of money on
    incompatible hardware, be unable to make small upgrades in
    the future thus spending more money in the long run.

  6. Agreed on all except 2 points: lunch and coffee. At my previous
    job coffee and lunch breaks were invaluable time to tear yourself
    away from the monitor and get some much needed downtime. Your folks
    are working hard X hours a day, and can really use the 20 minutes to
    refresh their minds and clear the clutter.

    If you chain your developers to their desks – even if voluntarily,
    with great incentives, you will still suffer a loss of productivity.

  7. ———————–
    Hema

    Calacanis.com provided some useful tips today about how to save
    money running a start up. Some tips are very useful in my life.
    Thanks for your Tips Calacanis.

  8. Hi,
    You have some intersting tips. Could you please explain your first tip (Buy Macintosh computers, save money on an IT department) with some details. I have mostly been a PC user and am not aware of the savings of the IT department.

    I don’t follow your blog, so I would appreciate if you could e-mail me the details or when you provide the answer here.

    Thnaks,
    Pranav

  9. Someone who is a workaholic or spends long hrs at the job might not necessarily be a more dedicated employee. They might just have poor time management skills. People who are incredibly productive and focused can accomplish a lot in 6-8 hrs a day. If they need to work over the weekend then they aren’t managing their time well or your project schedules aren’t realistic.

    Of course, you work 7 days a week. It is your company! Why would anyone who doesn’t have equity in your company want to work so hard to make you rich?

  10. Two thumbs up for money saving tip #6. In New York, people are already doing this – renting out office space to save money. In addition, people are saving money on commuting and travel by using video conferencing and teleconferencing from companies like http://www.24conference.com. These tips have been very helpful, thanks!

  11. Good post, BTW I am a MAC user and I also use Google Apps, so couldn’t agree more with you. Here is what I wanted to add. If the company requires its employees to travel for business technically speaking the company could own all of the awards associated with this travel, here is how this could be done. Fist set up company credit cards, you can use something like Wright Express. Second you can require employees to create company reward account with airlines, hotels and car rental. The employees could then securely share all of their rewards with the company’s travel agent via http://www.AwardWallet.com what this website does is it tracks rewards for people and allows sharing of this reward information. It will also tell you if some rewards are going to expire, which is very nice. So this way some of the travel that the company books could be done using those reward points instead of spending cash. This alone could save a lot of money. Hope this helps.

  12. More like spend gratutious amounts of money on
    incompatible hardware, resimler be unable to make small upgrades in
    the future thus spending more money in the long run

  13. I found “outsource to middle america” rather amusing.
    Peoplesupport.com use to be in St. Louis before moving to Manila,
    and NetworkSolutions has a few buildings there too

  14. Even though this post is over one year old, it’s worth even more now than when it was first written. than when it was written. I send this to people almost daily
    and the thanks I get for educating them is amazing. But it’s
    not me, it’s Jason’s ideas and thoughts. You get credit, as well
    you should. This should be in every entrepreneur’s brain.

    -Luke

  15. No matter what you earn, it’s easier than you believe to take control of your money. A few simple things done regularly can really make a lot of difference.

  16. I’m a bit surprised that outsourcing actual product development is not one of the tips. I don’t mean traditional outsourcing destinations in Asia, where communication / coordination costs can quickly erase the benefits and slow down time-to-market, but rather high-value-for-money regions such as Eastern Europe, where you could find great and opinionated engineering and creative talent at a fraction of Silicon Valley rates, especially in this economy. As an added benefit, you’d free yourself of some of the worries related to scaling office space, etc.

  17. thank for the tips you shared. it would be useful for people
    who are planning to manage a business.. it’s a great way of
    earning money if you know how to use it or manage it
    thanks

  18. […] need to learn when to spend your money and when you should not. For example, if your employees want fancy desks or cubicles, when it will not help them do their job better, tell them no. But if a developer wants two […]

  19. Ive recently outsourced my company’s phones to a telephone answering service and have been very pleased. It has helped us cut back on costs and improve efficiency.

  20. This has to be the most realistic list that I’ve ever read. Cheap tables and expensive chairs … very nice. Adjusting working practices to suit your staff’s desire to work to their need for professional success is certainly a winner.

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