What mistakes have you made trying to "save money"?


66

I "saved" $40 per month in fees for a payroll service by doing everything myself.

Even though I spent quite a bit of time dealing with tax forms instead of my product, I still made some mistakes and had to pay an accountant $400 to clean things up and $1,000 in fines to the Federal Government.

What lessons have you all learned trying to save money?

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asked Dec 9 '09 at 00:52
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Jason Cianchette
506 points
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10 Answers


49

Here is one way to look at it:

Say you work 40 hours a week, and you are the one bringing the business to your company.
Now lets say you bring on average $2000 a week in sales: That's $50 per hour. That's what you are worth to the company.

So now, any job in your company that can be done by someone else for less than $50/hour, you outsource or recruit someone.
Can you find a cleaner for less than $50/hour? If yes, take one (I made that mistake: spent years cleaning the office myself!).
Can you find a bookkeeper for less than $50/hour? If yes, take one.
Etc...

So instead of spending one hour cleaning, spend one hour on marketing, on sales, it's worth $50.

Looking at things this way, you will grow your business quicker, and the $50 of your worth will become $60, then $90, etc. And then you can outsource more roles (or take on staff).

The key is focus on what adds value to your business and not the roles that are a necessity (cleaning is a necessity but doesn't add value. Neither does accounting. Preparing your marketing material adds value).

answered Dec 9 '09 at 02:10
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Guillaume Justier
786 points
  • Great way to analyze the business scaling issue! – Edwinoh 7 years ago
  • +1 - I use the same logic to decide whether to do a home repair, for example. – James Black 7 years ago
  • Energy levels are another factor. After cleaning the office, and doing the books, are you in the best shape to make sales call? – Jeff O 7 years ago
  • Focusing on the cost per hour is an incomplete method. You have to consider the cost per hour times the hours spent. A professional may charge me for 2 hours at $100/hour to accomplish a task. While I might be able to make $50/hour elsewhere, the task in question might take me 6 hours to complete due to my lack of skill or experience. So now the pro's $100 X 2 = $200 charge looks better than the $50 X 6 = $300 that my efforts would "cost". – Kenneth Vogt 6 years ago
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19

While I agree with what everyone here is saying I would add that there is a benefit to doing something the first time. One of the ways that startups often waste money is by outsourcing something they understand how to do and therefore not having a good gauge to evaluate what they are being charged for.

I have found that digging into tasks enough to really understand them first time puts you in a much better position to evaluate who to pass it off to and how much work it is.

One of the benefits of this forum is that you can often use the group to help you understand tasks (like incorporating) without having to do it yourself.

answered Dec 9 '09 at 05:27
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Dane
1,866 points
  • I partially agree. A lot of this is a risk management issue as much as a time value issue. The problem with doing some of these yourself is that you don't know what you don't know and that can come back and bite you. – Edwinoh 7 years ago
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13

I can offer a little different perspective.

FULL DISCLOSURE: My business provides G&A support services for startups, in other words all that legal, insurance, HR, finance, administrative stuff that most startups don't want to be bothered with and where they look most to cut corners. We get a fair amount of business cleaning up after the mistakes because someone didn't want to spend money on it and it came back and bit them.

Here is where we find our clean up clients most regret underspending:

  1. Legal incorporation, equity issuances, etc. - Yes, you can get this on the internet for cheap, but we've seen enough mistakes made here that, in my opinion, it really isn't worth trying to save the $2-3K you would spend with a real lawyer.
  2. Payroll Compliance - If you have employees, payroll services, like Paycycle, are cheap and will keep you in compliance with the tax authorities and worker's comp requirements. As you've discovered, the penalties for not doing this right can be expensive. Because of the level of abuse in this area, this is one place the IRS will cut you no slack.
  3. Patent and trademark - If your business involves these, this is not the place to cut corners. Get expert advice; there are too many landmines and pitfalls involved with doing this wrong. I have one client who, to save money, went to an inexpensive trademark attorney (spent <$1K). A year later, he had to change his name and redo all his branding. It cost him nearly $10K not to mention the lost brand equity.
  4. Income tax - While there are lots of good tools (e.g. QuickBooks) for DIY bookkeeping, in my opinion, it is worth the ~$300-600/yr it takes to have a CPA do an annual review of your books and file your taxes.
answered Dec 9 '09 at 04:52
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Edwinoh
686 points

11

One of the biggest mistakes one can make is not paying for the right tools to do the job. For example, I've seen more than one software development company where programmers had to work with outdated PCs and small screens, just to save a little money on hardware.

Another mistake is to save on things that are important for the perceived quality of your product or service. For example, if you have a shop selling luxury items, it's mandatory that the shop is perfectly clean and tidy. Saving on the cleaning or necessary renovations scares away potential customers. Using cheap paper for catalogues and flyers makes your shop look cheap.

answered Dec 11 '09 at 20:51
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Ammo Q
561 points
  • I think I worked for that company. :-) – Chris W. Rea 7 years ago
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6

The biggest mistake which I did for saving money in startups is hiring cheap developers and losing a lot of time and money on them. Ultimately, I did not get the product I wanted and this made me lose confidence.

What I learned from that is to never look at money in the initial development process and try to reduce other costs but hire best person who owns the work which he is doing.

answered Feb 6 '11 at 03:04
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Bhanu Prasad
209 points
  • The issue might be that you didn't gave your developers the impression that they can own something, that's why they are cheap. – Ayaz Alavi 3 years ago
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5

Anytime you try to do something yourself, you run the risk of losing money in the process, especially if it's not core to your business. As Cristian points out, it's part of growing up as a business to learn to let go. While at Day 1 you may not be ready to push some things out the door, by the time you hire employee #1, you need to off-load the items on your to-do list to someone who knows how to do those items.

Joel Spolsky, in The Web Startup Success Guide by Bob Walsh, wrote that his first hire was someone with complementary skills to what his company already had. In his case, it was an administrator. The idea, however, is to get each person in the company doing what they're best at. So if you're a Micro ISV then you're trying to do everything yourself. But if you charge $50.00 per hour to do work for someone, then every hour you spend on work that's not core to your business is $50.00 not earned.

As an example, I can create digital graphics, but I'm not very good at it, and I'm particularly slow when I do that kind of work. If I spend 5 hours creating a basic logo, that's $250 at the above rate. It would be cheaper for me to pay a graphic artist $100 to produce something better in one hour.

answered Dec 9 '09 at 02:02
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Elie
4,692 points

3

I think that any kind of activity that it's not intimately related to your business, like accounting in your case, it's worth declining to someone else.

I have done everything by myself in my current MicroISV and, frankly, I'm not 100% happy about it. I now believe that anything that somebody else can do better than you, should be done by that somebody else. The website, the coding, the marketing, the blogging, anything.

It's true that in a mISV you are the brain. But starting to let go of some of the things it's a good exercise for actually starting a business.

answered Dec 9 '09 at 01:39
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Cristian Pascu
168 points

2

I agree with the sentiment that your time is worth something and that outsourcing projects and tasks that aren't essential to your core business (or maybe they are, but you aren't very efficient at completing them) is a great idea. I am noticing the same phenomenon with my own current internet start-up. I can code basic HTML and stumble my way through things. However, what takes me hours to do would take a basic level web designer a quarter of the time. I am losing valuable time and content creation by doing it this way

My contribution is this idea: Currently, I don't have the budget (shoestring start-up here) to hire out these tasks. In this case, unless I want to go into some serious card debt, I have to suck it up and do these things. Do others agree, that on a shoestring budget and prior to launch/sales, this is an ok approach?

Just a twist I guess.

answered Dec 9 '09 at 09:28
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Jeff
154 points

1

One of the biggest mistakes I've been a part of personally is allowing development to be outsourced to an offshore firm in order to take advantage of lower cost development. It's difficult to build a software culture if all the technical decisions and implementation details are outside the firm, the outside firm's destiny is not tied to your own so the fear of your demise as a result of their failure doesn't motivate them as much as it does members of your own firm (you'll be out of business while they're taking the next client's money), and you're never quite as "agile" as you can be if someone is in the same building or city as you are.

answered Apr 2 '12 at 17:04
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Marc
121 points

0

Mid tier application hosting provider. We ignored the 2c per day deals and tried to find a reasonably priced mid tier company instead of a top tier company. After a few years (too many in retrospect) of problems, screaming phone calls from their NOC manager about why he scheduled power maintenance in the middle of the day or the day long network outages that also took out their own phone service we finally jumped ship. Thankfully, we never lost any customers, but I had lots of sleepless nights wondering what would happen next. Or whether they would not be able to pay their electricity bill and would get shut down. We had 10 dedicated servers so we had a lot to lose.

For only double the price we now have a reliable and more professional provider. Everything runs smoothly and everyone can get on with their work.

I can't offer any good ways to tell if a hosting provider is any good. It's only when the problems hit at 2am that you discover the on-call technician only likes Linux and will hang up if you call about a Windows server. All I can suggest is that you ignore the hosting review sites that only accept reviews from people that they can trace back to the particular hosting company IP addresses. All you get are the fake reviews or the happy talk.

answered Apr 3 '12 at 11:52
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James
1,231 points

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