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Damon Caiazza

Blog Post Detail
What Startups Don’t Need to Spend Money On
March 11, 2008
I’m not proud to admit it, but I’ve made some dumb business purchases during my career and now I’m ready to come clean.  Here are a few that come to mind that are particularly relevant to startups and were either committed by myself or other startups that I’ve known over the years.

Office Space

Go Virtual.  Why?  Because it is easy and it’s cheap. 

Staff no longer need to be in the same building to be productive.  Furthermore, you don’t need a building for phones, conference rooms, or a place to escape to from your home office.  There are plenty of virtual phone services, plenty of executive suites that allow you to rent conference room time, and plenty of coffee shops with Internet connectivity to escape to.

I made the mistake of office space on several occasions only to find no client meetings ever took place, rarely were staff in at the same time to even think about collaboration, and worst of all was the additional line item expense labeled Rent that haunted me every month until the lease was up. 

Accounting/Bookkeeping Services

Don’t hire someone to do your books.  You need to be in the numbers every day in order to stay on top of the business and the never ending twists and turns that come with running small business or startup.  If you can’t handle the books, you shouldn’t be starting a business.  They just aren’t that complicated to maintain.

Swag

Don’t you dare buy a t-shirt or a pen with your company logo on them!  And if you do, don’t think it is a marketing tactic because I guarantee the pens will end up in a drawer at home and the t-shirt on one of your kids after the cheap thing gets shrunk in the wash.  I highly doubt your target audience is a bunch of Kindergarteners so it won’t buy you much exposure.

Back in 2001 I was involved in a startup in which we secured funding to support business development activities that would ultimately bring together a large network of realtors.  While my brain kept telling me that a good strategy and business case would be the lynchpin of our success, my youthfulness stumbled across the world of on demand custom printing.  Within a few weeks of securing the biz dev funds, we purchased pens, pads for note taking, and a few other things I thought were just cool (err “useless”).  In the end, most of the stuff never made it to the meeting, nor did it make a difference.  In fact, I still stumble across some of it at home in boxes or desk drawers.

Software/IT Systems

Unless you are a specialized business that requires specialized software/systems, I’d argue you can do most of what you need to do with a word processing program, a spreadsheet, and some accounting software (remember, you’re doing the books!). 

I once made the mistake of purchasing some online collaboration software because I felt like we weren’t communicating well enough.  Six months later (and 6 monthly payments later) I was the only one that ever logged into the system more than 2 or 3 times. 

Software and IT Systems won’t be the lynchpin to your success or failure so just forget about them when getting started. 

What should you spend your money on as a startup? 

While the situation is different for every company, there are a few common expenditures that are worth making in the startup world.  Maybe I’ll cover those in another post as to not drag this one out any longer.  Anyway, in the end what you don’t spend (waste) money on is much more important.
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    Comments About this story
    I do agree that most simple start ups and businesses don't need a monthly bookkeeping service, you do need to establish a relationship with an accountant. It will save you a lot of time up front. Let them tell you how to organize the books and call them anytime you're unsure of how things should be handled. It's much better to do this now than to hand them some pile of spreadsheets that they have to decipher at tax time (which will cost you!)
    Posted by: Paul 3/17/2008 at 9:50 AM

    Forget the pomp and circumstance and focus on your product. If you have time and money for big launch parties, self-important titles, fancy IT systems, and high flutin' offices, what kind of a startup are you?

    Think MacGuyver, not James Bond.

    Raza Imam
    http://SoftwareSweatshop.com
    Posted by: Raza Imam 3/18/2008 at 5:56 PM


    Accounting/Bookkeeping Services

    Don’t hire someone to do your books...They just aren’t that complicated to maintain.

    Your advice cannot be considered universal to startups. I have a client now who is overwhelmed with the "uncomplicated" accounting you refer to; many owners do not have the expertise you seem to possess but they started successful businesses nevertheless. As to my overwhelmed client, I am now busily trying to unravel his books and numbers that he has tried to maintain himself. (I guess that means he should not have gone into business :0). You discount the fact that startups can benefit not only from the accountant's grasp of "numbers" but business knowledge as well; and, a good accountant will keep the owner in the numbers every day without costing the owner a fortune. IMHO.
    Posted by: dominic r. 3/19/2008 at 7:24 PM

    I guess it depends. I own a small internet marketing agency. Hiring a bookkeeper about a year ago was one of my smarter moves. She restructured my accounting software so it now works properly, and she prepares our customer invoices among other things. I used to spend 1-2 days per month generating invoices. As a result they'd go out late and we'd get paid late. Now I can spend my time selling and on billable hours, and my hourly rate is 3x that of my bookkeeper's. I still run the software so I always know where we are, but outsourcing administrative labor has helped me focus more on the business.
    Posted by: Internet Marketer 3/22/2008 at 8:22 AM

    Some times I think we have to really look at what is needed in our startups. And as well what to do with them once they get aboard do we Multi task these your staff members or just out source work.
    Posted by: John A. S. 3/24/2008 at 3:55 PM

    Yes i agree about accountants..in four years i was charged $I,400 but received $3,080 in tax refund..
    I would not have made a "profit "wthout my accountant.

    One of the mos expensive items for startups is research..my tip use; Pakistani expats..high quality work and cost effective..
    Because of the good results i have had i am building a research team in Pakistan..It is a country starting to take off ian amor

    Posted by: ian a. 3/27/2008 at 7:02 PM

    Boy, these tips really are right on target. 37 years in business, the last 28 in my basement, and still there. Pens, and swag? Yep. Boxes still in my closet. The accounting? Well, I'm a creative, not a detail person. So I pay someone 10 hours a week to enter the bills and receivables, do the invoicing, follow-up, and leave the real 'product' to focus on. It is so easy to get attracted by glitter that really doesn't have any substance to it, and forget the basics that will get you where you are going.
    Posted by: Mike W. 4/4/2008 at 2:48 PM

    I agree completely, after 20 years of IT consulting I witnessed some catastrophic purchases by companies and divisions. When I founded Virtual Onramp, the stake I put in the "ground" was virtual virtual virtual...even our bookkeeping is online so I can see it everyday if I'm on the road and our accountant can review as readily also. We have development measurements for our "contract" programmers and have a couple that are just like family. The best exposure is your customers talking you up to others..."try to get a tee-shirt to say that for you"
    Posted by: Scott Y. 4/29/2008 at 5:45 PM

    Excellent points, Damon. I still personally think if you're early-stage funded, I recommend being incubated since it's a pretty crucial time in the product dev cycle. I was able to work alone many of the times, and our team understood to not distract each other unless it was really important, but being in the incubator kept me focused. We cranked stuff out pretty fast too. I'm sure for others, it's not necessary, and some teams may work better remotely.
    Posted by: Jared 4/30/2008 at 12:50 AM

    Due to the fact I own an event planning company, one of the obstacles I see being a small business is the need for advertising and its costs. In our situation, the product is simple designing events and venues and taking care all of the pertinent details. Advertising and getting people to recognize you, whether a start up or not is more challenging.
    Posted by: Andrea 5/1/2008 at 12:52 PM

    I would suggest spending money on the most important things, marketing and personal relationships.

    If we can effectively market and target our markets, then we will win above and beyond. Just look at the most effective companies and learn from their strategies.

    per ardua ad astra

    cheers
    Posted by: Nelson N. 5/3/2008 at 2:45 AM

    Hey Damon,

    Thanks so much for posting this! A lot of your tips are right on the money. Going online is definitely the #1 suggestion...and so important!

    I'm an official Microsoft ambassador and right now we're really trying to scale up our connections with influential people in online communities like yourself. I'd love to share with you some of the stuff we've been doing in the last couple months to help women entrepreneurs; we're really committed to providing all the necessary resources to help women start, grow and expand their business.

    We just wrapped up a women's entrepreneurial tour across the US called “Vision to Venture”; the response and turn-out was great!

    I'd really love your take on these offerings we have right now.

    Thank you so much, I hope I didn't overstep my bounds by directly contacting you. Definitely get back to me if I've piqued your interest-- I'd love to share more info with you.

    Best,
    Ashley Baker
    Official Microsoft Ambassador
    AshleyBaker08@live.com
    Posted by: Ashley B. 6/3/2008 at 2:54 PM

    Thanks for the post, Damon. I am glad to see that I am not the only one. When I started my online business in 2000, I spent too much on web hosting (I wanted to have enough bandwidth), spent money on an accounting system I didn't need. The one area where I needed to spend money was targeting my audience. I tried it on my own and failed. After I bought Glyphius, I saw the error of my ways. Now I am restarting my online biz very very small and will grow the site as business increases.
    Posted by: CJ 6/10/2008 at 1:12 PM

    Your advice is to NOT hire a bookkeeper? Are a kidding me? That is the worst advice I've ever seen.

    I can write software code. I can't fly payroll tax forms, worry about the IRS, make sure I am taking advantage of every early pay discount with vendors, file 1099s, request W-4's from vendors, etc. etc.

    Damon, this is just bad advice.

    I pay my bookkeepers (www.nebookkeeping.com) less than I paid in late fees, over the limit charges and payroll penalities.

    Do what you do best, outsource the rest...
    Posted by: Eric Johansen 6/10/2008 at 7:38 PM

    You can do your books yourself, if you are comfortable doing so and if you can be disciplined to get the job done. Most of my clients use QuickBooks, and they pick it up fairly quickly. You can save money and be close to your books this way.

    HOWEVER, you should hire an accountant to help you set them up and train you to enter the transactions properly. This doesn't have to be time-consuming or expensive, but it is IMPERATIVE that you start off on the right foot.

    You should probably also turn over your books to an accountant at the end of the year for tax preparation too.

    www.kenpirok.com
    Posted by: Ken P. 6/11/2008 at 11:49 AM

    Don't spend money on the things that aren't completely necessary to your company's survival. Keeping track of the financials is extremely important and should be allotted the appropriate funding. Go here to see some of the more "outside of the box" way to looks at startup situations and save money... www.readtheanswer.com/index.php?RTA=web2
    Posted by: John A. 7/1/2008 at 2:21 PM

    I have automated most every aspect of my online businesses to the point where two of us can do the whole thing. It is Internet tools like Google's Apps and open source software that has made the biggest impact. It's amazing what I can get done by myself with affordable or even free software and online services.
    Posted by: site o rific 7/17/2008 at 3:39 PM

    I am a long time businesswoman, I have had run a number of businesses and I agree Quickbooks is great for basic accounting, BUT, I also believe that you need a good accountant to review all of the books and file your taxes. I know it is all online, but I tried that where I did my own for a few years and then I hired an accountant about two years ago and he reviewed the last 5 years and found about 20,000 that I then was able to get back about 7 of. Guess what that was a stupid thing that I did. I threw away money because I did not think it was a skill I needed to pay for. Oh well we all learn from our mistakes. As for other things that I have spent money on (my first company) I spent money on a launch party that did not provide me with a return for what was spent. Oh well live and learn. As for office space, I have never had any all of my staff work virtually. I believe you need to be online and use SEO and I also believe that face to face with clients is dependent on your actual type of work. For me it is not a worthwhile expense. To this day I have 12 clients that I have never met and they have been with me for over a year each. But PR, advertising, getting your name out in the world is so very important. So don't skimp on getting noticed. But also look at the ROI of everything. That is what will make or break you.
    Posted by: Jennifer G. 7/29/2008 at 8:15 PM

    WOW! these comments are eyeopeners, i started to query for angel investors and found diamond advise on your comments and site, thank you very much, i love this and i will head all this. sincerely, al
    Posted by: alonzo a. 8/3/2008 at 9:09 AM

    I'm the CEO of a tech startup that has been in business for a year and a half and is entering the second round of funding. I honestly don't like lawyers and think accountants are too expensive. I see them both as cost centers, not delivering value on our core product. BUT...having said all that...I laugh at the idea that any serious investor will hand over a check for any significant amount to a startup company that has no professional tax advisors and corporate finance attorneys.

    Overall, good advice that staying on your product is most important. But there is one CRITICAL aspect of having good accountants and good lawyers on your team... it opens doors! I've spent thousands on seemingly over priced accountants and lawyers, but the advice I've gotten and the relationships they introduced have led to several million in investment.

    The KEY SECRET: Find an experienced accountant who understands capital markets and has done startup acquisitions in the past (not just a glorified bookkeeper). Network around and find someone who has longstanding relationships with the Angel and VC community in your area. I promise you that you will be glad you did.
    Posted by: Jason J 9/6/2008 at 10:19 AM



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