I’ll begin by giving you a bit of background about how we set up Cake back in 2001, and then I’ll dig into how you can set up a startup on a shoestring.
When we decided to set up Cake, my business partner and I were relatively young and naive. We’d never run a business in our lives and had no qualifications that said we could run a business. What we did have in Rob, my business partner was somebody who was very technically talented. He has proved to be one of the most successful software engineers and entrepreneurs in the UK having bought, built and sold a number of companies.
So, Rob was technically very capable, but I had no experience of running a company, of marketing, of sales or of anything like that, so there was lots to learn. In the beginning, there was the added complication that we only had a £15,000 startup fund that had to see us through to the point where we began to make a profit and were able to pay ourselves. Don’t get me wrong, £15,000 in 2001 was worth more than it is now, but it’s still a relatively small sum of money to start a company and for me to provide for my family.
My point here is that people often get very hung up on raising large amounts of money and worrying about that, whereas now, in fact far more so than in 2001 when we started Cake, there are so many ways that you can start a company on a shoestring. I’ll share some examples of exactly how you can do that here.
Leveraging software as a service
This is a relatively new phenomenon, in that it’s only really been used widely in the last decade. There are now thousands of software as a service (SAS) offerings. What this has done is removed the need for businesses to pay a licence fee, run their own server, or create a server operating system, upgrade the software on the server and so on. Instead, businesses can pay a monthly fee and access some really quite clever software that would probably have cost thousands of pounds in licence fees and computing costs previously.
Google GSuite (ex-Google Apps) is an excellent example of this and was probably one of the first ones that Cake adopted in its early days. What this gave us was a really smart email client, a calendar and Google Docs, which at this stage was a very early online editing, sharing and document storage facility.
Another example of a SAS we used was an HR app called Harvest. This was particularly important for Cake because we needed to keep all our HR records up to date. At one point we had people of 17 different nationalities working for us and we needed to keep a record of all the relevant paperwork in case we were audited by the Home Office.
HR systems are really important for all businesses and the bigger you get, the more an HR system can help you manage a central repository relating to anything to do with HR. That can include performance reviews, discipline issues, medical histories, passport information, job applications and so on. All of that kind of information needs to be held securely and only the relevant people should be able to access it. As we got bigger, we paid a monthly fee to use Harvest to run our HR system.
Don’t forget that the beauty of paying monthly for a SAS application is that as a new piece of software comes along that’s better, it’s relatively easy to download your data and import all of your information into this new software. You can just start using it and you’re not having to worry about buying a new licence, you just start paying a new monthly fee and stop paying the fee for the previous piece of software.
Because it’s so easy for a business to change software providers these days, it’s really important that the companies providing the software keep innovating and making progress to always be the best in the market, otherwise, they will lose customers. The onus is on them to keep you as a client.
The accounting software Xero is a good example of that. It’s a relatively new kid on the block in terms of online accounting software as a service, but it has quickly become one of the most popular. As more businesses started looking for online accounting software, some of the most popular existing providers of software that you installed on specific machines tried to move into the space but their early versions weren’t that good and they lost ground.
At Cake, we started using an online system called Liberty for our accounting, but when Xero came along we switched because it gave us more functionality for our monthly fee and it was ever-evolving. Xero was always improving pieces of functionality and was a really cost-effective option for us.
There are also hundreds of SAS marketing products out there. We used HubSpot, but there are any number of really high-quality marketing SAS products available. Again, you pay a reasonable monthly fee and, again, these evolve and improve all the time.
You also have blogging platforms like WordPress, which is what we use, but there are many others you can use as well.
Then you have video conferencing tools, which are obviously especially relevant at the moment. At Cake we were using video conferencing 12 to 14 years ago because a lot of our clients were based in the US. So, to begin with, we had Skype and then Zoom came along. We also used Google Hangouts, and now there’s Google Meet, which is a good one at the moment because it’s free and I’ve found the speed and quality are good as well.
The point with all these products is that they are all available for free or small monthly fees with no big capital outlay required on your part. You can choose the ones that you need for your startup.
Other benefits to software as a service
I would recommend that you start with the ones where you can use the free version initially. Most of these companies offer a free version and then when you reach a certain size you can switch to a paid version. By the time you part with some money, you’d hope that you’re generating enough turnover and profit to justify paying the fee that’s required to keep those products and allow you to use them in an ever-increasing way.
The other benefit to software as a service is that you’re not tied into licences and you don’t have to manage servers. It is important that you choose a reputable provider as you will be trusting these companies with your client’s and companies data, make sure you do your due diligence first.
Other ways to save money as a startup
Another thing to explore when you’re starting out is free business banking. We’ve just started a new business and we’ve chosen to use Starling, which is one of the challenger banks. It’s possible to find either free or very cheap business banking these days and that’s well worth looking at.
IP-based phone systems are another big change and one that can be especially cost-effective for startups, especially if you do need a landline number in addition to your mobile number. The benefit of an IP-based phone system is that you can plug it into any internet-enabled network. You can also choose your phone number to represent the area you’re in – for example, I might choose 0161 because I’m in Manchester – or you can get an 0800 or 08345 number and configure that through the IP system if you want.
With an IP-based phone system, if you do go out of the office you can easily forward your calls to a mobile. All you do is put an app on your phone which acts as an IP phone for the mobile too, which means you can take calls wherever you are.
You can also extend a system like this to your employees. They can put the app on their phones, on their computers or you can connect a physical phone in their home office or your business premises to the IP phone system. They deliver massive flexibility and are a cheap tool to use.
Marketing on a shoestring
From a marketing perspective, and I’ve talked about this extensively in a number of blogs, you can kick start your marketing by producing expert content and pushing it out into the world using tools like Hubspot to disseminate that information across the internet. It’s a very affordable way of getting your message into the inboxes of your potential clients.
Marketing using vlogs is eminently possible nowadays and you don’t need hugely expensive equipment either. The video quality on iPhones and Android phones these days is incredible and with a minimum of expense, that allows you to use your phone as a tool to produce some quite nice videos. Just invest in a little mic that you plug in or use wirelessly and you can get started.
There are lots of really cool things you can do to market your business that doesn’t have to cost a lot of money.
Web design to has become more affordable by using a website templating service. These services are reasonably easy to use and they allow you to buy a domain and then build your own web presence without the services of a web designer. I would always advocate using professionals to do this kind of job wherever possible, but if you’re starting a business and money is tight then you can absolutely do this kind of thing yourself, and it can look very good.
If you’re offering a service then you can use all of these free tools to market your service on an ongoing basis and you’ll generate business in this way as long as you can market effectively and in a way that appeals to people.
Building a product on a shoestring
It’s more difficult to build a product on a shoestring, but it is possible to minimise the amount of money that you’re spending on the product build. In a lot of cases in the tech world, the people who come up with the software ideas are actually software engineers and in that instance, you might build the product yourself.
But if you don’t have that expertise you’ll need to get someone else to build the product for you and there are various ways you can do that for a reasonable cost.
One is to bring in a business partner who is a software engineer and who can look after the technical side of things like I did with my business partner at Cake. We worked well together because we had a clear differentiation of duties.
If you don’t want to do that, then you’ll need some money, but you could look for the support of a company that offers various incentives and I’m going to slip in a shameless plug for thestartupfactory.tech, a company that I’m involved with as a non-exec.
What we do is specialise in building products on behalf of tech entrepreneurs. The beauty of using a company like thestartupfactory.tech is that we’ll use our experienced teams to build a high-quality product that you can start to generate income from.
The aim when you’re building a product should be to get it to a 1.0 version, or to a minimum viable product (MVP) stage, that will allow you to take it to market and start generating income immediately from that offering. What you don’t want to do is keep building and building and building and still not be in a place where you can generate money. The aim should be to start generating money as early as possible. Then you can add features as you go along, which will hopefully generate more income and feed the beast, so to speak. This will mean you can afford to pay the engineers to carry on iterating and building more and more features for the product until you’ve got it to exactly where you want it.
The key is to have a plan to get your product to 1.0, which will start generating your income, and then start the strategic development. This development will be funded by the money you’re generating through your initial product, which means you don’t need a huge slush fund to pay for development to get started.
Using third-party companies can, therefore, be especially helpful. You could look for companies, like thestartupfactory.tech, that may offer engineering in exchange for equity.
Hiring key people
It is likely you will need to start hiring key people who, hopefully, are going to be with you for the long term and who will eventually form part of your senior team. When you hire these people, you can consider offering them a small amount of equity as an incentive. You may do this if you can’t afford to pay them a high salary initially, you could offer a steadily increasing salary for the first few years. Often people are willing to do this if they really believe in the vision of what you are trying to achieve and will take a slightly longer-term view on compensation. That means you can start their salary a little lower in the first year while you’re trying to create cash flow by getting your products and services out there.
Once you’ve got things rolling and are generating income, you should be able to afford to gradually increase the salary. By the third year, you should be paying close to market value and that person has effectively earned their shares in the organisation. This means they’ll grow with the organisation and are fully invested in the business.
A note on giving away equity
While there are lots of good reasons why you might want to give away some of the equity in your company, like those I just discussed, I’ll add a cautionary note about giving away too much equity.
Don’t get too generous with the equity of the company. Remember that you’re going to be putting most of the time in, you’re going to be shouldering a lot of the burden and risk, and you need to make sure that you’re rewarded properly for that.
I’ve seen too many companies where the entrepreneur has given away so much equity in an effort to raise money in the early stages to the point they hold less than 50% of their company already. But that’s not the way I’d recommend entrepreneurs do it. You’ve got to be mindful that while people, whether that be investors or key members of your team, may deserve some equity, that you are properly rewarded too. It’s you who will have carried all the risk and will probably be working long hours, at least initially, and it’s important that you are properly rewarded for that.
This was a lesson that Iain Brooks, our non-exec director at Cake, taught me. Because of his advice, I think we struck a nice balance and when we were eventually acquired, people were rewarded with an amount that was representative of the time, effort, sweat, blood and tears that had been put into the company to get it to the point where it could be acquired.