Startup Penny Pinching Works
The small stuff can build up the bottom line and your company culture
For months Europe has been wringing its hands in worry over the war in Ukraine and Russian threats to cut off its supply of natural gas just when the continent is facing winter weather.
But a funny thing has happened so far—citizens have rallied to the challenge and are banding together to save electricity, reduce the threats, and retain their independence. It’s a lesson that startups can learn from at a time when marketplace pressure is threatening their survival.
The German Model
Despite needing hard currency to keep its economy afloat, Russia stopped piping natural gas to much of Europe in the fall in hopes of pressuring its governments to stop supporting Ukraine. But a funny thing has happened so far: there’s a glut of natural gas, and prices are surprisingly low because these citizens have found novel ways to conserve electricity and give Putin the finger.
The WSJ went in depth this week on how the people of Germany have turned this challenge into a kind of competitive sport. Individuals and organizations are developing creative ways to save every last electron. For example:
Local communities are dimming streetlights
Washcloth wipe-downs are replacing hot showers
Laundry is moving to every-other-week
Grocery stores have shortened hours
Chimney sweeps (photo above) check for gas leaks and heating system problems
Results are impressive: Gas consumption is down from previous years by 25%, even accounting for warmer weather. Storage facilities are 97% full. Putin is so rattled that he’s falling over and crapping his pants. For real.
The German people tend to be frugal and love bargain-hunting, so they meet the challenge with extra gusto. There are clear lessons for startups here, and one of them is that building frugality into your culture can pay off when times inevitably get tough.
A Startup Playbook
A few years ago, I wrote about our last company’s journey to get profitable. Like many startups, we were encouraged by investors and the general ecosystem to grow at all costs, throw money at problems, and not even think about the bottom line. The problems came when we stopped growing, and those same investors stopped being willing to put in more good money after bad. We had to self-fund to stay alive.
In that case, there was no general market pressure, and the problems were of our own making. Today, most startups are feeling the heat from a see-sawing technology investment cycle that got too high on its own supply during COVID and is now over-correcting in a pattern of reverting to the mean.
At Hearty, most of our clients are early-stage and flush with funding, but even they are strongly guided to do more with less. We learned a few things in our experience, and I’ve picked up a few tips since then. Here are some approaches that I highly recommend to my friends and clients:
Be Transparent with the Team and Partners - Your leaders must step up and outline the issue and what’s needed. Ideally, you’re showing the path to profitability and what it will take to get there. The key message is that it’s wartime and will be tough. But if you can get profitable, you’ll have a real business and control your destiny. Be real with vendors, freelancers, and other partners, too. They want you to survive and will find ways to reduce fees and improve efficiency.
Give Employees an Out - Whether part of or separate from a reduction in force, there will be folks who just aren’t ready for the belt-tightening ahead. That’s natural, and you should provide an offramp with fair severance. This will both reduce your costs quickly and ensure that the remaining teammates are signing up for the challenge ahead.
Cut Everywhere - Go down every. single. expense. Some call this zero-based budgeting. I call it “Assume everything is cut, and you’ve got to prove it’s needed.” You might lose a few features that clients like or say goodbye to some sunk costs. But every penny counts, and this is about survival.
Cut the Parties - This deserves a special bullet point. You’ll be tempted to keep the holiday party or quarterly offsite trip. DO NOT KEEP THIS—even if you lose out on a deposit or worry about a morale hit. People won’t enjoy the damn party because they will think it’s a waste of money. You can bring it back—and it will be much sweeter—when business is back on track.
Monitor Results and Celebrate Progress - At our previous company, we had a TV in the office showing our “Life Date” when we would be profitable (or die trying). It was updated at weekly team meetings based on how sales came in, and costs were cut. We put the spotlight on individuals and teams that found ways to reduce costs. Those all-hands gave us a chance to thank everyone and also do some coaching on what NOT to cut in the process.
Watch ‘Em Rally - When people are given the challenge and truly buy in as a team, it’s amazing what kind of savings come out of the couch cushions. We found ways to kill or reduce seats on our software, in-house creatives and developers found ways to do the work we’d normally outsource, and a client success person stepped up to take an internal HR role.
Years ago, after our startup canceled its big holiday party, someone on the team came up with an idea to instead have a potluck at the office and a white elephant gift exchange. The cost was almost nothing—and we had an amazing time together. Even after we got profitable and rewarded ourselves with more fancy parties, we kept this potluck and white elephant event, and to this day, I remember those much more fondly.
Whether war, inflation, threats to democracy, or global warming, humans continue to defy the odds and our worst fears by banding together to solve problems. When pressure comes—and with the right leadership (that’s you, dear reader)—we can do amazing things together and reflect with pride on our accomplishments.
Bob Gilbreath is a 2x-exit entrepreneur and co-founder of Hearty, a curated matchmaking service that combines top software developers with early-stage, venture-backed startups.