It’s a tough time to be an entrepreneur. 2023 marked a decrease in deals, and fundraising remains challenging in 2024. Once upon a time, a healthy growth rate was a significant indicator of success, and founders could count on more funding during the early stages of their business. Now, startups face more scrutiny from VCs on how well they spend their cash. Capital efficiency will be the great hurdle we, as founders, must conquer if we want our startups to make it.
Being a startup founder is not easy—I get it. The increasing pressure to optimize current spending and sustain impressive growth only adds to the stresses of the job. However, the surviving companies will learn to strategically manage what they have to yield the best results.
How You Can Play With Costs to Improve Capital Efficiency
At its core, capital efficiency generally describes how effectively a company utilizes its financial resources to run and grow. It measures the investment amount versus the generated returns.
This is a simplified explanation: There is so much that could be discussed, and there are several formulas and methods you can use to calculate capital efficiency, which are well worth learning about. However, I want to focus on how startups can make a big difference in this area by cutting costs.
It’s hard, but being ruthlessly resourceful when it comes to spending is a critical skill for startup leaders to develop. As founders, we need to consider the payoff of every expense. Do you need every paid subscription you currently have? What is an appropriate amount to spend on sales and marketing? What roles does our startup need to hire for right now, and what roles can we wait on?
I know this can be overwhelming. So, I wanted to share some simple yet effective cost-saving strategies you can implement to reduce some of your spending and improve your capital efficiency.
1. Outsource Work When Possible
One of your most significant expenses will be payroll –– paying employee salaries can account for over 50% of a startup’s budget. While hiring a solid in-house team is essential, bringing on full-time employees for every role just isn't feasible when you’re working with limited capital.
By outsourcing specific tasks to part-time workers, contractors, or freelancers, you can significantly reduce our overhead costs. At Double, we have a small but mighty core team of employees who do excellent work. However, we also hire contractors, freelancers, and remote assistants to help us execute growth campaigns, administrative functions, and other initiatives.
These flexible work arrangements allow us to tap into specialized expertise without the long-term financial commitment of full-time salaries and benefits. This way, we only pay for the work we need when needed, freeing up capital for other critical areas of our business.
Outsourcing also means we can scale our team up or down quickly in response to changing project demands. This agility is crucial for a startup navigating a fast-paced, competitive market. It allows us to remain lean and nimble, redirecting funds to where they'll have the most impact.
On this subject, I would like to add that even if you are leading a small team, you need to get comfortable with delegating. The mentality that you can do it all yourself will ultimately slow things down, elevate your stress levels, and reduce trust with your team. If you’re new to delegating, start small: Determine which manager can help make decisions while you are busy. And choose a trusted team member or administrative assistant to help with your daily duties like calendar management, inbox, research, presentation prep, and more.
2. Choose Your Tech Stack Wisely
A tech stack is a non-negotiable reality for startups, but it can quickly get out of hand from a budget perspective. Evaluate your current tech, and find solutions that provide incredible value without breaking the bank.
For instance, using generative AI like ChatGPT for content creation and data analysis can reduce costs. Design tools like Canva offer free and lower-cost pricing plans, and it has template libraries that can help you create stunning visuals quickly.
When it comes to project management, brands like Trello and Notion offer free and low-cost tiers for tracking tasks and projects. Notion is our go-to tool. For sales, customer service, and marketing, HubSpot’s free and low-cost tiers offer a good entry point for early-stage startups. The ability to scale up with more advanced features as you grow means you’re not overcommitting financially upfront.
Cutting the cost of your tech stack allows you to operate more efficiently and allocate your limited resources more effectively.
3. Go Remote
The costs associated with maintaining a physical office –– rent, utilities, and office supplies –– can significantly drain your budget. By opting for a remote setup, you eliminate these overhead costs entirely. Our team at Double works remotely, and we find that the cost savings and flexibility are definitely worth it.
A remote office also opens up a global talent pool, enabling you to hire the best people regardless of their location. This not only helps us find top-tier talent but also allows you to take advantage of varying cost-of-living standards.
Another major advantage is the agility that comes with a remote workforce. Startups need to be prepared for rapid change and growth. The logistical and financial challenges of expanding or downsizing office space present a roadblock to scaling quickly.
4. Promote From Within
As a startup founder, I've learned that promoting from within is one of the smartest moves you can make. While it’s tempting to bring in a senior-level outside hire, they can have some drawbacks, including a hefty price tag.
Instead, looking to your existing team for leadership roles can be far more beneficial in the long run. Your current team members are already familiar with the company culture, processes, and goals, which means they can hit the ground running without a steep learning curve.
Promoting from within also fosters a culture of growth and opportunity. When team members see that their hard work and dedication can lead to career advancement, they become more motivated and engaged. Engaged, valued employees are less likely to churn, which also impacts your spending in the long term. High turnover rates are costly, involving not only the expense of recruiting and training new hires but also the loss of institutional knowledge. By promoting from within, you can cultivate loyalty and reduce these hidden costs.
Good Money Management is a New Differentiator
Staying vigilant about spending isn’t glamorous. However, if you can leverage cost-saving strategies that improve your capital efficiency, it will pay off. Remember, every dollar saved can be reinvested into your startup's growth and development down the road. As fellow founders, let's be strategic, resourceful, and supportive of each other as we navigate these challenging times.