Running a Lean Business: Doing More With Less

Saving Money With Smart Budgeting

I have been a budgeter all of my life, from the very first lemonade stand I had where my parents made me understand the cost of goods sold by making sure I knew how much the input costs were. Looking back, I think they may have subsidized me a little. Reality is a little harsh for an eight-year-old!

The more I got into budgeting, the more it made sense to me. I once heard a personal finance blogger say that the moment saving money feels better to you than spending it is the moment you know you’ve crossed the threshold into really solid budgeting. I love saving money on every little thing that I can. If you’re curious how personal and professional finances are similar and how to better manage your business’s financials, check out our blog: How I Managed My Personal Finance Budget Before Budgeting Apps Like Mint (spoiler: poorly).

Building a Lean Business With Less Capital

Now, you don’t have to be like me. You don’t have to buy all of your kid’s clothes at the same time and only buy the local grocery store brand macaroni and cheese because you save $.50. But that kind of smart and frugal spending is incredibly useful for getting a business off the ground.

Raising capital is a ton of work. There are a lot of reasons why our CEO chose not to raise capital for AutoCFO. Now, there are businesses that have to raise funds because the capital costs of starting are too high or the working capital costs of growing are too high, i.e. you need inventory or you need to build a prototype of your product before you can really sell it.

But the irony of any form of capital is the less you need it, the easier and cheaper it is to get. So how do you build your business in a way that needs less capital? One thing that you’re not going to want to hear is that you’re probably going to have to move slower. There are some companies that get a billion-dollar valuation in 5 to 10 years, but they are extremely rare. Don’t let the headlines fool you, while unicorns are becoming more common, they are still incredibly uncommon. Most business owners are lucky if they hit 1 million in revenue of the life of their business, and those with really great processes and structure may make it 5, that gap between 1 million and 5 million is more like a chasm. And that chasm can almost always only be crossed with good financial management.

Becoming a Frugal Business Owner

So, being a frugal business owner, how does one start? The way I do it: question things. My marketing and sales team constantly tell me that I need this or that subscription. Ironically, my marketing and sales team are going to be editing this blog and they’re probably going to chuckle at me because I’m notorious for seemingly penny-pinching in this area! Of course I don’t consider it penny-pinching, I simple only make justified purchases. Generally, we have used the free version of whatever app until it is absolutely necessary, i.e. someone has made a very strong case for getting the premium version of the product.

Why? Because to me, every penny counts. Spending $500 a year on software when it may take us 10 minutes extra per month in order to use the free version that’s a little bit more clunky, to me, is a no-brainer. $500 is $500 I could spend on product development or better marketing copy. Things that really move the needle for my business.

A particular piece of subscription software or an employee that makes my life a little bit easier, these are things that don’t necessarily move the needle for the growth of my business, so I don’t spend money on them until I have plenty of money to spend. I love the idea of a virtual or personal assistant and maybe someday when I have a bigger business I’ll spend money on one, but it’s not a necessity for me right now.

Sometimes it’s good to do things the hard way for a little while until you have the money to spend to do them the easy way. Generally, you can either spend time or spend money. This isn’t true for all things, though. There are plenty of things where I feel it’s important to spend good money. For every business these things are different. For my business, we spent a lot of time, energy and money on developing a really quality product. We also spend a lot of time, energy and money on understanding our product-market fit and improving the way we communicate that fit to our current and potential customers.

Hiring Staff While Running a Lean Business

Another great tip that can help you run a lean business is whenever you’re thinking about hiring someone, think about their contribution to the bottom line. Not just as a cost, but whether that cost makes a material change to the business and allows you to make the overall bottom line bigger. And when I say bottom line, of course I mean profit or cash flow. Maybe you’re “not be in the business to make money,” but at the end of the day, if there is no money there is no business.

If hiring an additional person is just “something you need” but it’s not going to improve the capacity of your business, the quality of the service in a way that makes people pay more, or the ability to generate revenue, then you need to think about whether your business really needs that person right now.

If that person is going to increase your capacity to serve your clients or make it so you can serve more clients and it’s going to be a temporary increase in costs but the additional revenue that you can bring in will cover it, great! However, if it’s just a cost that you need and it’s not going to increase revenue, improve expenses or allow someone else more free time to go out and sell more product or somehow increase the bottom line, you need to question whether you need that person. Why? Because that cost is going to put you into a situation of less cash and far less profit, but not actually move your business forward.

Improving Your Business, Not Just Growing

Whenever you’re thinking about making decisions to hire in order to grow or improve your business, think about what the definition of improvement truly is. If you’re just growing but not actually improving either profit or revenue, then are you actually moving your business forward?

All too often I see business owners make hires because they’re deemed absolutely necessary by someone and their team has been demanding this or that. They hire personnel and are told they need this key software or need that project management tool to make the team happy.

But to me, the most important aspect of whatever it is that the team wants is the business case for it. How is this going to improve our profitability or efficiency to where we can acquire more revenue or in the long run (or even in the short run) save time and money?

At the end of the day, while many businesses are mission-driven their lifeblood and the only thing keeping them truly going is cash. Even nonprofits only have so much cash to spend.

So whenever you are thinking about a new piece of software or a new hire or a part-time hourly contractor that you’re considering taking on, ask yourself this: Does this move my business forward? Does this help me achieve my goals? And while you are at it, take a couple of minutes to comb through your current expenses. Is there anything you are spending hard-earned money on that isn’t moving your business forward in some way? Taking the time to answer those questions can help you become one step closer to running a lean business.