Adam Smith understands how to make every dollar count. As the co-founder of Kakaxi, a marketing app and device for farmers, Smith has spent the past 14 months stretching the $800,000 his startup raised (including $34,000 through Kickstarter).
Besides spending money on market research, prototypes, and pilot testing with future clients, Smith has his hand in nearly every facet of the Austin, Texas-based company's development — from buying printer paper to helping growers show Community Supported Agricultural groups (CSAs) how their batch of bok choy was grown. Debt financing? Something Smith desperately wants to avoid.
“Which means you have to be resourceful," said the 29 year old, who also serves as Kakaxi's director of partnership. “Luckily, I work with a lot of farmers — so I have an endless supply of vegetables, and I cook a lot."
Budget for success
Ask most business analysts and they'll tell you: Companies that start lean are more likely to survive. Think Microsoft (founded during downturn of 1975), aerospace giant United Technologies (launched during the Great Depression in 1929) and Dropbox (started in the Great Recession of 2008). These businesses, all still thriving today, got rolling when being tight with cash was crucial.
Of course, burning through money quickly is seldom a winning plan. But the cliché is startups stock the fridge with coconut water, and spring for a ping pong table and basketball court, or even a slide (or two) in lieu of stairs. And Hollywood loves to sensationalize this image — just take a look at any episode of HBO's Silicon Valley. But this is hardly a recipe for success.
Companies that learn early on how to operate efficiently better protect their capital and give themselves more time to grow. They also develop a mindset that can keep them in the good graces of their initial investors, and if they're lucky, with eventual shareholders.
Sometimes, though, splurging may be necessary — it's all a matter of how spending is justified. Take Kakaxi for example. Sure, Smith is rolling in enough carrots and beets to eat like a vegetarian king. But he doesn't discount the value of networking.
“There's an element of being out and about," he said. “So I told myself that coffee, lunch, dinner, even breakfast is worth doing if it's with someone else. A mentor gave me this advice: Try to have lunch every day with someone different."
Operating efficiently is also the mission for Timothy Feess and his three co-founders atGnarbox, a startup based in Santa Monica, Calif. Their team raised $550,000 on Kickstarter,plus additional funding after, then focused on stretching capital to live within their means so they could get their content-editing device and app off the ground.
“The concept is to take a little money and make as much progress as we can," Feess said. "We've applied that over and over again — I am grateful for what we don't have, and what we do."
When to yield
Bending and stretching budgets is top of mind for Vlad Lokshin at his two startups: the app consultancy DarwinApps and the project management solution Turtle. And, as if juggling two businesses wasn't enough, Lokshin pursed and earned an MBA from Cornell Tech in 2015.
That doesn't mean the New York-based Lokshin is a fan of excessive frugality, however. Constantly agonizing over how to pay rent or cover monthly bills can be “crippling," he said.
Those who start companies should be open, then, to considering investments and financial partnerships. Keeping hold of as much of your company is admirable. But being worried about finances all the time distracts from growing your company.
“I don't recommend bootstrapping for too long," Lokshin said. “We did it at DarwinApps and there is a bit of an edge to that sword."
Currently Lokshin and his partner are looking for incubators and investments, and working out of WeWork and other startup spaces while they pursue capital. Already on his second startup, Lokshin knows by now that when a company is finally ready to take off, funds must be available to finance the fuel. Without it, a Google can quickly become an Excite.
“Save up as much as you can," he said.“You never know when you will have to give the rocket engine fuel for growth. The worst thing is being ready to accelerate but you don't have the money."