Pinch Your Startup Pennies

As a member of an entrepreneurial venture, you'll quickly recognize the importance of every dollar that your business transacts. Before you can even begin doing business, you're forced reach into your own pockets and endlessly pitch your idea to family members, friends, and many outside investors to attract the necessary funding -- which oftentimes seems to be an insurmountable amount. Once you're able to start operations and begin to record actual revenues (instead of forecasting projections), the value of each dollar becomes even more apparent. Fortunately, there are a number of common mistakes to avoid and steps that you can take as a first time entrepreneur to stretch your budget.

One of the first important business lessons I picked up was learned the hard way -- by paying for it. As the founder of a small company with a book value of a few thousand dollars, I consistently found myself and my company being pushed around by the larger vendors with which we were doing business. There did not seem to be anything that we could do; they were the largely known and well recognized business and our company consisted of merely a group of guys looking to find a market for our largely unknown product. It was because of our company's small size that I had just figured that startups like ours were a dime a dozen to these large businesses with a strong national and even global presence

A few months after beginning business, a conversation with a fellow entrepreneur allowed me to realize just how incorrect I had been in my value judgments. Vijay, an acquaintance of mine from high school, had informed me that he was once employed by one of the large companies that had been neglecting our startup. When I half-jokingly asked him if he had any lingering contacts to get our fledgling company any special deals, he explained that something like that wasn't really possible. However, Vijay astutely pointed out that although our company was still a small business, most of the customers that his former company dealt with were of equal or slightly bigger size.

Taking his advice, I phoned the company, explained my dissatisfaction, and requested to close our company's account. Within minutes of casual negotiation, our company had its rates cut by nearly 25% per month and was awarded four free months of service for our previous troubles.

As a thrifty business owner, I immediately recognized the potential in the tactic and realized the threat to take our business elsewhere could be used as a dominant bargaining tool. Within that same week, I contacted the other companies which we were having difficulties with and was able to use the threat of termination to renegotiate lower rates and fees with three of the other five companies that we did business with, in addition to our bank. Moreover, I found it surprising that one of the companies that lowered our rates in effort to keep us as a customer was a business that ran a virtual monopoly on its service and our company really had no other alternative organization to do business with. It was clear that once we threatened to leave as a result of poor treatment, each business was very determined to keep us on as a customer.

If you take away anything from my experience, please let it be this -- as a young startup you will most likely be abused and neglected by at least one of your vendors. It's crucial to realize that even though the relationship with your company may seem to be of little importance to them, many of their customers are likely to be small businesses just like yours.

If you find your business being mistreated, don't hesitate to make the other party recognize it. Demand better treatment or threaten to walk away. Doing so will help your bottom line.