Smart Staffing: How to Keep Startup Costs Low
Last updated on February 9, 2023 by
We briefly touched on the costs of hiring personnel for your startup in our article about overhead costs, The Hidden Costs of Running a Business: How to Minimize Overhead. In this article, we’ll cover how to properly manage those costs, which can help you save money while recruiting and hiring top talent.
If you haven’t read our series opener, it gives you a top-level idea of how to keep startup costs low. These articles serve as more in-depth resources for specific areas where expenses can get unwieldy.
Saving Money While Running Your Startup: Part 3
Keeping business costs low when hiring in the beginning is important for a number of reasons, and is crucial for a startup’s survival and long-term success.
Firstly, it allows companies to conserve financial resources and avoid running out of money before establishing a position in the market, which is especially important if a business has no cash flow. Personnel is one of the largest expenses you can expect when running your business. Managing them correctly and planning out your hiring strategy will help you keep overhead costs low.
Secondly, it allows companies to focus on building a solid foundation and developing a sustainable business model before expanding the workforce. Thirdly, it enables the company to minimize its risk and make data-driven decisions on hiring and scaling the team.
Finally, it enables companies to test its product-market fit and validate value propositions before investing in a larger team.
We don’t recommend you take advantage of anyone or unfairly compensate your employees. We just want you to make smart decisions for both you and your staff when you start your business. Layoffs are a nightmare for everyone, and we want to help you avoid them.
We find that many entrepreneurs and small business owners fall on either end of a spectrum: they either try to do everything alone for too long and quickly burn out, or they quickly hire too many people and find themselves with more staff than they need, which can lead to a sharp increase in business expenses overall.
We suggest that you hire slowly and intentionally. Early-stage startups have very specific hiring needs, and should bring employees on board who are there for a clear reason, adding value to the team, finding merit in their own role, and contributing to the business.
How Do You Keep Hiring Costs Low?
Maintaining low costs when hiring for a startup or new business involves being creative and strategic in identifying cost-saving opportunities while still maintaining a high level of employee satisfaction and productivity. There are several ways to keep overhead costs low when hiring for a startup:
- Outsource non-core functions and hire contractors: Startups can outsource non-core functions such as accounting, legal, and HR to save on overhead costs.
- Hire remote or freelance employees: these types of hires can help startups save on office space and other expenses associated with having a physical office. However, some work cannot be done remotely. In that case, you won’t have the luxury of relying on remote workers and freelancers.
- Utilize staffing agencies, core facilities, and other service providers: Staffing agencies can provide temporary or contract employees at a lower cost than hiring permanent staff. Core facilities can provide space and equipment, and service providers can take on tasks you currently cannot.
- Offer flexible benefits: Instead of offering traditional benefits such as health insurance, a startup can offer things like wellness allowance or a remote work stipend.
- Use online recruitment tools: Online recruitment tools such as job boards, social media, and recruiting software can help a startup reach a larger pool of candidates at a lower cost than traditional recruiting methods.
- Prioritize cost-effective employee retention strategies: Implementing cost-effective employee retention strategies such as open communication, transparency and flexible working hours can help a startup retain its employees and reduce the need for costly hiring and training.
Below we cover some of the above strategies in greater detail, and include some additional ways in which you can help cut costs when hiring more employees, keeping your startup expenses to a minimum.
Contractors & Outsourcing
Before hiring new employees full time, it usually makes sense to hire contractors or consultants on a part-time basis. This is especially useful for help with initial legal and financial needs, early HR support, and marketing/communications as you develop your product. Your need for this kind of help will grow as your company grows.
When you hire consultants, think carefully about how you structure their contracts. Ask other people in the industry about who they have worked with and how they structure contracts and payments. If you’re in the very early stages and just need help setting up your corporate structure, consider hiring someone hourly.
If you are trying to raise funds and need someone to help you review and negotiate deal terms, a project-based fee might make more sense. This is usually a short-term solution, however. As you continue to grow, and the amount of help you need increases, you may consider hiring lawyers, accountants, and communications professionals on retainer.
There are also many tasks that don’t require significant expertise that can be outsourced to independent contractors who are looking for part time or project-based work. Independent contractors can be helpful early on, assisting on competitor research, data analysis, and even customer prospecting. Many companies also outsource customer support tasks through agencies, which is usually cost-effective only once you reach a certain size.
Strategic Hiring & Retention
The key to saving money on staffing when you begin hiring in-house is to carefully select the right individuals with the appropriate skill sets. A suitable candidate should possess intelligence, adaptability and a positive compatibility with your entire team.
It’s important to note that this is not about “culture fit,” which is often used as a guise for discriminatory hiring practices. Instead, we mean that your initial employees should have complementary abilities, a shared perspective on work and company objectives, and a congenial demeanor.
By being strategic in your hiring, you can enhance productivity and decrease turnover in the long term, thereby fostering a strong and united company culture.
Retaining employees should be a priority, as it takes time and resources to train new hires. Therefore, it can be more important to hire someone who has the potential to grow with the company than to hire someone who simply meets the specific qualifications listed on a job posting.
While some turnover is expected as the company evolves, the goal is to get the best return on investment on each hire by keeping them engaged and content in their work.
Instead of relying on superficial perks like ping-pong tables and fancy drinks, consider ways to enhance the overall quality of life for you and your team members. Focus on providing a supportive and flexible environment, meaningful benefits, and opportunities for career advancement.
Be Creative with Compensation
Even though a competitive salary goes a long way in hiring and retention, it’s not the only thing that potential employees care about. Offering meaningful perks and benefits that improve quality of life can make a huge difference in attracting the right candidates without draining your budget.
If you’re an early-stage startup still seeking funding, you probably can’t offer compensation as competitive as other established companies can offer, but you can sweeten the deal with things like more vacation days, childcare benefits, tuition and education assistance, flexible hours, remote work options, and employee stock options.
Listen to what your employees want, and try to meet them there. If you show that you are willing to negotiate and accommodate the things that are important to them, you’re more likely to make the hires that interest you most.
While this tactic can turn people into workaholics, providing incentives can be a way to maximize productivity during times when you have specific goals and milestones to reach. These could be as simple as one-time bonuses, or as creative as flexible days off, extended holiday vacations, travel opportunities, or education stipends.
Another way to incentivize productivity is to be the kind of workplace that doesn’t require a strict 9-5. If you foster a culture of trust that allows employees to stop when they finish their work, they are more likely to get tasks done in a timely manner and won’t resent you for keeping them on the clock twiddling their thumbs.
Using Automation & Improving Workflows
In the age of AI and machine learning, the options for automating time-consuming, “mindless” tasks are growing rapidly. These usually come with a subscription cost, which will be included in your overhead costs, so ensure that it’s cost effective before you commit. For example, many small businesses rely on accounting software to automate their bookkeeping.
However, while automation has certainly replaced the need for some human labor, it doesn’t mean making huge staffing changes. You can simply use it to help your existing staff work more efficiently.
In addition to automation, there are many other ways to improve efficiency, it just might require making some changes. The best way to figure out which workflows are and are not working is by empowering your employees to take ownership over their work so that they can provide insight on how best to improve it.
Even if this means making a big effort up-front, it will save you time and money later and keep your employees feeling like valuable members of your team.
Hire the Right People & Keep Them
When you launch your startup or small business, be incredibly strategic about who you hire and when. Don’t fall into the trap of trying to do everything yourself, but make sure that when you do hire people, they fit well with your team and can provide immediate value.
Keep them with appropriate compensation, but focus on quality of life more than simply about salaries. Happy teams are productive teams, and productivity will have a major impact on your bottom line.
Other articles from the Saving Money While Running Your Startup series: