The hugely successful business with humble beginnings is the stuff of legends. There is no shortage of stories of successful businesses starting out in a garage or as the part-time diversions of busy college students in need of some extra cash. Today, the Internet is full of opportunity for the cash strapped entrepreneur to bootstrap him or herself to business success. All it takes is a good idea and some entrepreneurial know how. In the end however, it’s the entrepreneurial know how, the willingness to implement it, and the ability to learn from mistakes that separate the successful from the rest.
Those with entrepreneurial know how and a good business head will understand the difference between frugality that benefits the startup, and frugality that harms it. For example, giving yourself as small a salary as possible, furnishing your office with old furniture, using free quality open source software, using drop shipping for an e-commerce business, and taking advantage of free marketing opportunities all benefit the startup business.
However, some frugal choices that help to get the startup off the ground can limit business growth in the long-term, while other frugal choices should be avoided altogether because they will harm both short and long-term business prospects. Here are some examples of various choices and how they affect a business:
Free Open Source Software
This mostly falls in the short-term benefit category. There are exceptions to this because sometimes off-the-shelf, open source software designed for the masses will be the perfect long-term solution for some businesses. However, for many, it will limit their growth. Businesses are unique in their operational requirements and often pay the price of reduced efficiency when using open source software. This inefficiency stems from the fact that it isn’t a custom fit for their special needs. Custom made software enables a business to outperform their competitors who use poor fitting and therefore inefficient open source software.
Another potential problem is having a hodgepodge of standalone software that doesn’t integrate well, which further decreases efficiency.
Drop Shipping
Drop shipping is also in the short-term category for many e-commerce businesses. Again, exceptions to this will always exist. An advantage of drop shipping is that you don’t have to spend money on inventory, which is a benefit for the cash poor startup. However, controlling your own inventory as well as the shipping process gives you complete control over the customer fulfillment process. This control is important for maintaining a high level of customer satisfaction. A large base of repeat customers is essential for the long-term success of a business, and only satisfied buyers become repeat customers.
Another advantage of having your own inventory is that you can take advantage of bulk rate deals with suppliers and can then out compete your competition on price. Many e-commerce stores use the same drop shippers and therefore have similar product offerings. Because you don’t share this limitation, you can easily differentiate your brand from your competitors by offering unique products.
A limited amount of drop shipping has its place for trying out new but unproven product lines and for rounding out your product offerings.
Free Hosting
Free hosting hurts both the short and long-term prospects of the startup business that requires an Internet presence for its revenue. The main problem is that you have no control over your Internet presence. The free price tag can easily tempt the inexperienced person who is just starting their business and therefore has nothing to lose. However, any sort of business success can be lost overnight because of an unfavorable terms of service change that makes doing business impossible. The more success achieved, the more you stand to lose from an arbitrary decision made by your hosting provider.
This is no way to live when your very means of making a living can be taken away in an instant. Many people learned this lesson the hard way when using web 2.0 properties for generating an income was popular a decade ago. Use of free hosting means you aren’t a paying customer and therefore no business relationship exists between you and your hosting provider. The motivation for keeping you happy simply isn’t there.
Many free hosting providers use advertisements as their means of generating a revenue. This will draw away a percentage of your traffic and hurt your brand credibility. However, if there is no obvious revenue generation model, then there’s a chance that your hosting provider is not legit. An exception to this is if the provider is a gigantic company with deep pockets such as Google. However, Google places severe restrictions on money-making with its BlogSpot blogging platform.
It’s important that you have a web host that has your best interests at heart. This is only possible when you’re a paying customer. Of course this isn’t the only criteria for a reliable web host. Excellent customer service, web security, web server speed and uptime should be its highest priorities. The ironic thing about web hosting is that for something so vital to your business success, it is relatively cheap compared to other business expenses. If you haven’t done so already, check out our hosting service offerings by contacting us at Applied Innovations.