5 Areas Where Bootstrapping Startups Should Never Cut Costs

January 26, 2017

9:15 am

There are many compelling reasons for early stage startups to pay close attention to their spending. After all, your ability to spend less money on certain things leaves more capital available for growth down the line. In addition to this, if you have plans to pitch to investors in the future, showing an ability to cut costs is one of the keys to success.

However, there are some areas where cost cutting is simply a bad idea. If you cut costs in these five areas, you can cause future expense and headaches. It just isn’t worth it.

Establishing Legal Protections

From the time you formulate your business idea, you should be concerned with implementing the legal protections that you need. From establishing copyrights and other intellectual property protections to incorporating in order to protect company founders from liability to drawing up partnership and employment contracts, you need to focus on that.

If you delay getting good legal advice and ensuring that you are protected, you might save money in the short term. However, the risk just isn’t worth it. Imagine being sued because you drug your feet on incorporating. Think of the negative impact on your business if you were disrupted because you thought you could simply spend money on a patent lawyer down the line.

There are some legal documents that you may be able to handle on your own. However, there is nothing that can replace the advice of a real attorney.

Production

Take a moment to think about Barbie Dolls. While Mattel’s officially trademarked Barbie Doll product and the accessories that go along with it are fairly pricey, they are much more sought out than similar dolls made by other companies. This can be attributed to several factors. Marketing is certainly one of them.

However, the key reason that Barbie Dolls are coveted by children and collectors, while discount store knock offs are not is quality. Whether you have a manufactured product or a technology offering such as an app, invest money and insure that the product that goes to market is attractive, reliable, and durable.

Data Security

Your computer systems will contain confidential communications, business plans, customer data, and information about your business operations. You have to think about data security from day one. This means investing money in IT security.

You’ll want to invest in secure payment processing such as Stripe. safe web hosting through a company such as Wizz Hosting, and auditing from a reputable security specialist. It’s also a good idea to invest in training employees to identify phishing schemes, social engineering, and to understand the importance of good password security.

Employee Benefits And Compensation

If you want to hire and retain the kind of talent that will help your startup grow, you can’t cut costs when it comes to their compensation. This means paying competitive wages, offering great benefits, and providing your team with a great work environment.

It’s also important to continue to reward good performance with pay raises and other bonuses. Keep in mind that 35 percent of employees will look for jobs elsewhere if they don’t receive a pay raise within a year.

Dealing With Taxes and Finances

Handling your taxes and dealing with your financials is definitely something that is best left to the professionals. This is an area where a miscalculation or misunderstanding of the law can be very costly. Even if you don’t hire a full time financials person, it may be a good idea to contract with one who can help you create your initial financial plan, and recommend an app for keeping  your records straight.

Cutting costs and maintaining a tight budget are good things. The more you can do that, the more you can invest in growth and research and development. Just remember that there are certain areas in which going the cheap route can be very costly in the long run.

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Dianna is a former ESL teacher and World Teach volunteer, currently living in France. She's slightly addicted to apps and viral media trends and helps different companies with product localization and content strategies. You can tweet her at @dilabrien

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