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Prioritize your startup cost

Prioritize your startup cost
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

The four foundation pillars for a startup are man, machine, money and market. But the question that keeps troubling an entrepreneur is which of these he can afford to forgo especially when he is cash starved during his initial days of setting up his new business. 

Infrastructure

The most important task while setting up a business is getting the quintessential utilities in place. These do not necessarily mean only furniture and fixtures, but from a broader perspective include the entire working space, food, travel cost, accommodation and workplace aesthetics.

The degree of involvement also varies depending upon the industry under consideration. For a customer oriented business it is very important to have the location aesthetics in place. A lot of brand building happens and hence such businesses are required to pay more attention to the location, building, interiors, which cumulatively becomes a costly proposition for the proprietor especially at the early stages. Hence from the very beginning it is important to map and include these costs.

For Sandeep Varma, who started the Addict Juice Bar in 2007, setting up his own brand wasn’t a cake walk. The ‘smoothy bar’ concept was nowhere in existence in India, so there weren’t any benchmarks to help him build his logistics or plan his business dimensions in term of cost and product width.

“Research and developmental activities in addition to the task of building the infrastructure can be counted as the two most costly activities that I couldn’t avoid during the initial stage. Proper research helped me analyze my market space, and a great setup (infrastructure), helped me get easy, quick and convenient access to the customers,” explains Sandeep Varma, who today may not be the only Smoothy maker in Bangalore, but sure is a favourite one, as he has now expanded to Chennai and can’t stop looking ahead for more lucrative avenues coming his way.

Equipment

The equipments or machinery can be counted under the must haves for a manufacturer, or a backend service provider. These will not always include bulky machines but can be all about computing equipments and ancillary equipments. That directly or indirectly supports the parent business.

Sanjay Kumar started MobME Wireless Solutions Pvt. Ltd. (an ITES company) shares his experience, stating that he did not shift into an office during the initial days. “I spend mostly on travel, food and accommodation during my early days. But what took a great amount out of my pocket were the equipment such as computers, software and hardware which form the base for any IT firm. Having an office at an early stage is not necessary at all,” spoke Sanjay.  

Raghav Sharma, owner of Shakti Press, a printing press based in Nagpur transformed his uncle’s old business into a new one. All he did was convert part of the printing press (printing packaging and product labels) into a notebook manufacturing unit.

So all he invested was in a new set of machinery. And with the same set of labour and at the same location- he had his own new business in place.

“We printed labels and packaging designs, so I just got a new binding and cutting machine in place. We used the label printing machine to print the notebook covers, and utilized the machines when there were no pending outdoor orders. So just one new machine helped me create a new business for myself,” quips Raghav, who is happy to have his own venture apart from the family business.  

Employment

“Getting the right people is a kind of investment, and not a cost. They are the final face of any service or experience that the consumer goes back with. Especially in our industry (food and beverages), it is all about having the right people- all our processes and services depend on them,” said Sandeep Varma.

According to him initially they had to pay more and attract people to work for them, now gradually they have built a reputation for themselves. But still training people and maintaining them is one of the most costly exercises for a startup. The reason being that people need to evolve continuously unlike equipments and locations; hence they have raised costs attached to it.

“The very basic raw material is brain power for IT startups which means you can sit in a college hostel or at your home and just start off. Salaries for founders could be nil or bare minimum till revenues start flowing in but the salaries for employees should definitely hit their bank accounts at the end of every month,” put forward Sanjay.

Whose company incubated at Technopark TBI and also took aid from Virtual incubations most of which are free of cost. They did so because they didn’t want to compromise on the brain power front and wanted to build an edge for themselves in the market.

Marketing          

Most people misunderstand marketing for active advertisement and sales force efforts. But at its nascent stage (which is applicable in case of a startup), marketing is all about research and forming a strategy- i.e. helping the company decide on its market space and target consumer. This helps the company have the right strategy and intent from day one.

The other aspect, to note under this section is the advertising cost. Your business will get going once it starts rolling out cash and billing sales, which can happen only if it has developed recognition for itself in the market and has started drawing people (consumers) towards it.

The way out here is again, doing it without spending that much- that is cutting down the excess frills and more importantly the extra cost attached to advertisement. The easy way out today is social media without any arguments. Getting up close and personal with people and addressing their demands directly is what effective and conservative (on the cost front) marketing is all about.

Cost-mix

There can never be a fixed mantra for prioritizing your costs. What would be important for one industry type can be done without in case of the others. There is a lot of diversity in the characteristics of sectors like IT, F&B, service, manufacturing, etc and hence diversity in their needs.

So, to prioritize your costs the prerogative step is to first research about the most critical element of your business plan; next mark the cost and allot the full amount required to this section. Do look in for the freebies you can avail from the government and incubation offerings, but don’t avoid spending on these requirements, as it will form the foundation. Example would be, if you are getting a good programmer who understands your plan, pay him little extra but don’t let him go, instead you can go in for second-hand furniture for your office.

Thereafter you can proceed to the next quintessential cost, at this step seek how you can cut this cost by incorporating cost saving measures. And in the same way keep listing costs and ways you can cut them down. The least important ones will be left last in the list; this only means that they can be done without for the time being and not that they are completely redundant.

So once your business starts spinning in the right direction, you can do tops down approach and put money in the sections you had initially avoided. This is required to give a full form to the business, so that none of the departments are left cash starved and at the same time the essential requirements are also taken care off.

Edition: December 2016

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