How to create a lean start-up
Four golden rules for keeping your start-up costs low
Last weekend, I took a trip to Sardinia. I stayed at a resort in a sleepy little town called Alghero. In the midst of beautiful sunshine, crystal clear water and great local beer (Ichinusa) my mind starts to churn as I see a rather unexpected business model.
A model that I would expect in the Londons and New Yorks of the world – I find existing in a sleepy town! I found out that the resort I was staying at only has four permanent members of staff, managing over 60 rooms. That’s right – 60 rooms! That’s a potential of over 120 guests.
How are they doing it? A lot of people ask me how they can build a lean business. How they can keep their business light whilst still holding the gear to compete. Well, seek and you shall find.
Here are four rules to get you started…
Rule 1: Subscribe. Don’t implement.
If there is only one tip you take away from this article – it should be this. The good news is that it’s 2013 and most of the solutions to your needs are available in the cloud. As a business, you may need accounting software, a project management tool, a HR software and so on. A typical approach would be to buy licenses for each of software and install them on a machine in your office, or, get your infrastructure person to host it in a server within your office. Job done, right? Not really. Once you implement this licensed software in-house, then comes the maintenance – which costs time and money. Even worse, as your company grows there will eventually be upgrades – which costs even more time, money and even downtime! Soon you start to realise that even though you made a smart move by implementing an ‘out-of-the-box’ product, it’s not proving to be so smart and moneywise after all. Well, what should you do instead? It’s simple – subscribe. For example, if you need a project management software – there are tools like Pivotal Tracker and Zoho that are completely hosted in the cloud. You pay a monthly fee for usage and that’s it – no maintenance, no upgrades and no surprises. What’s even better, a lot of these tools (at least the two mentioned above) have free small team packages – so you pay nothing to get started. A few more handy products:
- Email: Try out Google Apps for Business
- Code hosting: Try Github
- Voice/VoIP/SMS: Try Twilio.
Rule 2: Contract In. Don’t outsource.
Over the last 12 years, I’ve dealt with multiple outsourcing companies. I cannot say to date that I was satisfied with the quality of the work produced. If you’re a small business, it’s silly to hand over the fate of your business process to a body shop in a faraway land. So what can you do? Contract In. There are sites like peopleperhour.com and ODesk that present you with a selection of quality professionals you can engage with. Even if you have to pay 5-10% extra, get the contractor to carry out the work onsite (unless it’s completely impractical). Have an agreement in place where the contractor gets paid when the work is done to your satisfaction. This way YOU control the quality. You don’t need workforce on your books until its absolutely required. Most contractors have their own limited company setup via which they’ll invoice you for their services.
Rule 3: Strategically partner
The resort in the sleepy town of Alghero serves excellent food, but it does not run the restaurant itself. I figured that the resort had leased out the restaurant space to an entrepreneurial chef and his team. It would only be smart to negotiate a profit split in the lease agreement. Creating strategic partnerships can take you a long way. Be generous to begin with and tighten up as you start to prove yourself in the partnership.
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Rule 4: Take heavy lifting off yourself
You must always take out the heavy lifting from your own workload so that you can focus on the core business. If your business mission is to sell the best doughnuts in the world – you need to focus on how to make and sell the best doughnuts and not worry about putting in hours and hours to host your website or track expenses. Try out subscribing to a personal assistant who can do these tasks for you. Wherever you can – subscribe and don’t hire, so that you can keep your business lean and light. There are websites like Ask Sunday that can provide you with a virtual personal assistant on an hourly basis. So I’ve given you tips to cut your costs but I never actually told you how that resort managed to lean out their business so much. The truth is, I got distracted by the sunshine and crystal clear water (and my Ichinusa beer), so I never specifically asked them but, I’m sure if I had – they’d have been following similar rules to the ones above.