The main goal of any startup is to test assumptions and obtain feedback in the form of sales that sustain the business.
It's increasingly possible to carry out that goal at a lower cost than ever. The old days don't look very romantic in today's climate.
Chris E. Talis, CPA, MBA and Senior Partner at Hedgerow Mergers & Acquisitions, offers ways in which a company can have an overall startup approach designed to take advantage of today's low-startup-cost climate:
* Reduce fixed expenses by going virtual for as long as possible. To the extent the founding team members can work from home and use e-mailand cell phones to communicate, fixed expenses like office space and furniture can be minimized. At some point—usually when the team finds it must bring other people aboard to accommodate growth—an office will likely become necessary.
* Avoid hiring people — engage contractors. Even when it's necessary to bring in additional help, using contractors can be cheaper than hiring employees (BusinessWeek.com, October/November, 2007). Individual projects and per-hour expenses may be higher than employees, but using contractors enables startups to retain spending flexibility.
* Keep online development costs in check. Setting up a sophisticated Web site usually is more involved and takes more time than expected. It's essential for startup companies to monitor progress and expenses closely, especially if offshore developers are involved. Divide such projects into segments and set a project cost for each segment, if at all possible.
* Put as much money into marketing as possible. Professional investors always like to see a company's major investment going into sales, public relations, and promotion. Using Internet tools such as search engine advertising, entrepreneurs can quickly and easily test different messages and measure return on investment—say, by monitoring click-throughs (BusinessWeek.com, 11/12/07) against sales.
Smart entrepreneurs often shave marketing costs by collecting e-mail addresses of prospects and using search engine optimization techniques to increase the rankings of their Web sites via links and traffic.
Additional tips include:
* Finding a law firm which focuses on entrepreneurs looking to help companies grow
* Hire an accountant who works with entrepreneurs and who understands the economic realities of a start up.
* Consider forming a Limited Liability Company or Corporation; discuss with the lawyer and accountant which entity is the best.
* Visit a commercial bank and discuss the requirements of establishing a small line of credit..even if they will only offer the company a small credit card line in order to begin a credit history for the company.
* Establish from the start accurate records and detailed bookkeeping system so that progress is documented at all times.