How Startups Can Keep Costs Down
Any aspiring CEO that desires to start a new business must adapt his thinking to the major new trends that have hit the marketplace in the past decade. Whether you are under 30 years of age or older, market conditions are the same for all competitors. Those that adapt, win, those who do not might get a second chance or become just one more casualty.
The primary objective remains to grow revenues, but there are four major trends that have focused on keeping costs down to allow for success in attaining your primary goal. Let’s take a look at each one:
1) The Internet
Why reiterate the obvious? For those over 30, they have just gone through a ten-year transition where every aspect of commercial processes, relationships, and activities have been turned on their heads. Just as the dust begins to settle and after winners and losers have been determined, industry pundits are shouting that a “Brave New World” of how we react socially and shop is about to arrive, all due to smartphone technology. This transition may be as monumental as the last wave, but every entrepreneur will want to stay ahead of the curve. You do not have to risk everything on the latest and greatest idea, but preparation will be key.
Suffice it to say that marketing, networking, and selling will change dramatically over the next decade. Make sure that you have business partners that can guide your efforts and deliver the goods when necessary. In the meantime, take advantage of web-based tools that cut down on travel, keep your sales pipeline activity top of mind, and provide more leads for that all-important deal.
The outsourcing (off-shoring, if it crosses a national border) phenomenon has been sweeping the globe for decades in every market, both developed and developing. In combination with the Internet and other telecommunication capabilities, it is one activity that has eliminated costly overhead, leveraged low-cost labor in a different locale, and made every going concern more cost conscious in both the near and long term.
For example, do you really need a standard office? Today’s modern startup is “virtual” in every way. The CEO and management team work out of their homes. Sales and distribution are outsourced to “Value-Added Resellers” (VAR) that work out of their homes. IT is outsourced to a third party, as well. Each move is designed to keep costs as low as possible during the critical early development stage, when investment funds are sparse and tangible results are all that matters.
3) Cloud Computing
Surveys show that 75% of small businessmen do not understand what cloud computing is or how it could revolutionize their business model. In a way, it is a combination of the first two trends, but it is more than just converting to a “hosted” solution, sometimes called “Software-as-a-Service” (SaaS), for your computer operations. It can entail much more, utilizing new web-based tools from the likes of Google and others to coordinate and streamline your business activities like never before. It is key in that IT expenses have been the fastest growing and most difficult to control during this new electronic era.
4) Venture Capital
Unfortunately, the only costs going down here are for the venture capitalists, but the availability of risk-based funding has diminished severely in the past decade. Portfolio managers lost heavily when the Internet “bubble” burst. The Great Recession was a second whammy. Most firms now set the hurdle around $10 million in revenue before they will talk to you. Yes, there are firms that focus on lower levels, but more ownership and at a higher cost will be demanded for the risk involved. It is now exceedingly difficult to find working capital for even the best of investment ideas. The market has responded with such new ideas as “Crowdfunding,” but funding will require a continuous effort every step of the way.
In many ways, these four trends are interrelated to a degree, but each is designed to lower costs and free up your energies for the all-important task – growing your business. Adapt your business model, and your path to success will be a much easier one.
Tom Cleveland is a writer for www.bettermerchantaccounts.com. He has over 30 years of experience in executive management, corporate governance and business development. Tom served as CFO for various Visa International entities from 1980 until his retirement in 1999 and was instrumental in expanding the global reach of the Visa system. Tom’s writing on business issues has appeared in the NY Daily News and BusinessInsider among others.
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