Increase Your Startup’s Chance of Survival
Most startup businesses will not survive their first five years. The main killer is the owner underestimating the costs to start and operate a business.
Why does this happen? Early on, a lot of business owners take on unnecessarily high expenses, such as rent that can negatively impact their bottom line. Rent usually includes other line item expenses that erode your profits like insurance, renovations, inventory and utilities. Need a solution? Start a business without these costs!
Five things a startup business can do to lower their expenses are:
1. Start off at an incubator
2. Sell online
3. Shrink your marketing budget by using social media
4. Create a virtual office
5. Decrease your product line.
Recently, my friend Brian started his own business, Nah-Meen Studios LLC. This was Brian’s first business venture. How did he make it happen?
1. Business Idea: In June, Brian proposed the idea of creating a casual game about “falling cats” to his friend, Bradley, who loved the idea. Bradley created the name “Meowch!” and began designing sketches.
2. Research: All business owners have to do their homework! Brian and Bradley researched mobile software development, and found a cross platform development tool called Corona SDK. They found free web hosting for their website through Heroku and built their website.
3. Create It: Brian did the coding, while Bradley created the artwork. Both Brian and Bradley spent around 1,000-1,200 hours each creating Meowch. They both maintained full time jobs while working on the business.
4. Set up the Business: How do I start a small business? Like 7,666 other people in 2011, Brian reached out to NYC Business Solutions and took advantage of our assistance. I explained to him the process to setting up the business and the business structure options that would address their needs. Brian and Bradley wanted 50/50 ownership. A Limited Liability Company was formed NY State Department of State in October 2011. This was the first significant expense for the business.
5. Product Launch: Once the game was ready to go, they submitted to Apple for approval on December 30th. By January 8th, Meowch became available on Android and IPhones for $1.99. Apple and Android take 30% of the sale, so the business takes in $1.40 per purchase. Within two days, Meowch had upwards of 3,000 unique users a day.
6. Adjust: The game had great initial reviews. Meowch went global, with purchases notably in the US, China, Brazil, Thailand and the UK. Like all businesses, they experienced a few hiccups along the way, like piracy, which is common on Android games.
They are in the process of launching a free version and an updated paid version that is redesigned with new features.
The only significant costs for the business were forming a LLC, licensing agreements and a few other minor online costs. They kept the marketing budget low, by relying on strong user reviews, press releases, social media, and word of mouth. The biggest investment was their time. One could debate how much their time is worth, but there was very little other financial risk for the business.
Estimated costs for Brian and Bradley: $600 each
Starting a business is not simple or easy. However, entrepreneurs have to be creative in finding ways to minimize costs and maximize profits so that they are poised for success. If the majority of startups are failing because they underestimate costs, break the trend and lower them!
At $1.99 per user, Brian has a long way to go to becoming a millionaire. I’m sure the Executives at Electronic Arts are not trembling with fear that Nah-Meen Studios will put them out of business. However, with proper planning, a quality product, and literally no ongoing expenses, they have create a product that will continue to grow and bring in pockets of revenue with the potential upside of hitting it big.
Brad Seader is the Director of the NYC Business Solutions Centers in Queens. If you have a question or comment for Brad, drop him a note below. And, please share this blog entry with your colleagues on Facebook and Twitter.