Startup Q&A
What are some hacks for reducing your burn rate if you are a startup?
CEO and Founder of Kruze Consulting
Table of contents
Every startup spends >80% of their money on 3 things: Payroll, Rent, and Contractors. If you can save money there, you’ll hack your burn rate. Anything other than these three things is a waste of your time, eg saving $250 month by moving from Anna’s Janitorial to Martha’s Janitorial. Please don’t analyze anything else if you’re trying to save money. To review:
- Payroll: people are expensive. Hire the very best people that you can and pay them well. Always take quality of people over quantity. As David Barrett trumpets in this article, more people does not equal more output, it means more overhead.
- Rent: rent is expensive, so consider having a remote office or headquartering in a city other than San Francisco or New York. Austin and Portland have a blazing hot startup scene for this very reason.
- Contractors: contractors are expensive… but less so than employees. You don’t have to manage additional rent/desk space, equipment, or training. The trouble is, they might not be loyal or responsive.
Little known startup burn hack: A recent new tax law allows many unprofitable startups to reduce their burn (by slashing their payroll taxes!) - up to $250K per year! Use this calculator to estimate how much you could cut your burn with an R&D tax credit study. That’s a legit hack to cut your startup’s burn!
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