Unnecessary Startup Costs Are Running New Businesses Dry

people discussing about business

No one can deny that this pandemic-induced economic recession has been brutal on everyone, from livelihoods being lost, entire industries still experiencing repercussions from the pinch, to many other countries still clawing their way back to normalcy. As a result, many families have fallen under hard times and several businesses forced to migrate or stop their operations altogether, disrupting the financial ecosystem we’ve come to know and changing the lay of the land for future generations.

However, one opportunity that’s provided hope for many entrepreneurs and like-minded individuals is that it is immediately right after economic downtimes when bullish trends are at their most decisive momentum, presenting a once-in-a-lifetime opportunity to set themselves up and turn things around. But, one major flaw and shortfall in the surge of startups, small businesses, increasing partnerships, and ecstatic business planning is the failure to limit their startup costs to a minimum.

Early Investments Must Be Smart And Lean

When starting a business, you don’t want to put down all your cards on the table and bet everything you have on your working capital at a single shot; that’s not financially smart and is borderline gambling with your early investments. Instead, your early cash flows and money management must be smart and lean, meaning that all resources allocated are objective, purposeful, and with their expected returns already calculated.

  • Always Negotiate Your Terms: Firstly, when meeting with suppliers, partners, clients, and other key stakeholders, always be open to strike up a deal and negotiate better terms for your business. A startup cannot afford to leverage a financial strongarm because the resources don’t exist, so don’t be afraid to receive a few extra quotes, squeeze your way into a bargain, and put everyone on equal footing. As a result, you’ll find your money working less for a lot more in return.
  • Test And Pilot Your Products First: In addition to negotiating better terms, we recommend you test and pilot your products and services before introducing them to the open market. Yes, trend analysis and reflecting on consumer demand work on paper, but the actualization and implementation of the business framework itself is a different playing field. Therefore, you want to guarantee the need for your product and service, highlighting its areas of improvement in the actual application.
  • Avoid Significant Sunk Costs: One common problem experienced by many startups in terms of cash flow and expenditures is sunk costs, particularly having too many of them earlier in the business’s life when it isn’t necessary. As a result, you can’t negotiate or be clever with these fixed costs, unlike variable overhead expenses that can be managed better through suppliers and other forms of cash flow management. So, we recommend avoiding high sunk costs like renting out vast office spaces and limiting your exposure in the meantime.
  • Work With Discounts And Leverage: Last but not least, always be open to working with discounts and leveraging earlier investments in more efficient spending practices like outsourcing non-core operations, purchasing raw materials in bulk, and many other cost-effective approaches. In fact, you could also opt to create more job opportunities given the weaker than expected jobs report released last week to help onboard more talent onto your team.

Of Course, Never Cut Startup Costs For The Sake Of Quality

While we advocate the reduction of startup costs to ensure business sustainability and resilience during its earlier operations, you must also understand that cutting startup costs should never come at the expense of quality. In the business world, first impressions last because your initial release and spotlight always garner the most attention from potential customers, so you don’t want to come onto stage shorthanded.

  • Don’t Compromise The Product Or Service: If any of your startup costs are directly attributable to the design, construction, innovation, or development of your product or service, then feel free to maintain the same amount of resource allocation. Any reduction can expose it to unnecessary risk and an increased likelihood for failure, so it’s much better to avoid the compromise and give it the best possible chances for success.
  • Establish Financial Health Early: Apart from product and service quality, businesses must never cut costs when relevant to their core operations’ long-term financial health and stability. Just like an individual would invest in health insurance, urgent medical care services, and emergency funds, you must not sacrifice necessary legal fees and business protection for the sake of extra savings.

Every Business Idea Deserves The Chance To Flourish!

In conclusion, we firmly believe that every business startup deserves the opportunity to shine and flourish under the spotlight. So, before you mistakenly place all your eggs in one basket, be sure to review and go over your startup costs multiple times to ensure the maximum economic benefit from your early investments.

Scroll to Top