Running a lean startup, part 1: The basics


When you’re building a startup, every dollar counts — but knowing where to save and where to invest can be a challenge. Learn the basics of optimizing your spending and building a resilient, growth-oriented business.
Building a successful startup is all about making the right trade-offs and finding creative ways to do more with less.

As a founder who has navigated the ups and downs of the startup world, I know how challenging it can be to keep your business lean and efficient, especially when you're trying to scale quickly. In this post, I'll dive into some specific areas where startups can be more judicious with their spending, and share some hard-won insights from my own experience at Sesame Labs.

What does it mean to be lean?

As a startup founder, you've likely heard the term "lean startup" in entrepreneurial circles. But what does it mean to be lean, and why is it so important for early-stage companies?

The lean startup methodology is about maximizing efficiency and minimizing waste. It's about being strategic with your resources — whether that's time, money or talent — and focusing on the activities that will bring you closer to achieving your goals.

One key aspect of being lean is spending the right amount of money to enable quick experimentation and iteration. As a founder, your goal should be to find product-market fit (PMF) as efficiently as possible. This means investing enough resources to test your hypotheses and gather data, but not so much that you're burning through your runway without learning anything valuable.

Another crucial element of being lean is learning to do more with less. When you're operating with limited resources, you can't afford to throw money at every problem or opportunity that comes up. Instead, you need to get creative and find ways to achieve your goals through resourcefulness and ingenuity.

This might mean finding alternative solutions to expensive tools or services, leveraging your network for support and advice or finding ways to automate or streamline processes to save time and effort. When you don't have unlimited resources to work with, you're forced to think outside the box and come up with creative solutions to your startup challenges.

Why is it important to run a lean startup?

Running a lean startup is crucial for a number of reasons, but two stand out as particularly important: extending your runway and using your capital to win.

In today's uncertain economy, having a longer runway is more important than ever. If you've been intentional about running a lean business from the start, you'll be in a better position to weather any storms that come your way. A lean approach gives you more flexibility and resilience, so you can adapt quickly to changing circumstances without the added stress of a rapidly dwindling bank account.

When you're not wasting resources on non-essential expenses, you can also focus your energy and funds on the activities that will truly move the needle for your business.

This might mean investing in product development, customer acquisition or building out your team in key areas. The key is to be intentional about where you allocate your resources and to constantly measure the impact of your spending against your goals.

Taking a lean approach is especially important in the early stages of your startup when you're still trying to find your footing and carve out a unique value proposition.

4 areas where startups can trim expenses without sacrificing growth

In my experience, there are many ways to keep your startup lean — but some areas are particularly ripe for optimization. Let’s explore a few key places where you can trim the fat without sacrificing growth or impact.

1. Legal fees

Legal fees can be a significant (and often unexpected) expense for startups. It's crucial to know when you need a good lawyer and when you can get by without one.

There are certainly times when investing in top-notch legal counsel is worth every penny. A prime example is during a fundraising round, especially if you have a complex cap table or are dealing with multiple investors. In these situations, skilled counsel can help you negotiate, answer questions from investors and navigate term sheets, potentially saving you millions in the long run. That’s money well spent.

However, retaining lawyers for day-to-day stuff can rapidly get expensive. One example from our experience at Sesame Labs was when we needed to update our Terms of Service and Privacy Policy at a client's request. What seemed like a straightforward task ended up costing us a whopping $5,000 in legal fees. That was a shock to us as first-time founders.

After a few similar incidents, we made the decision to pull back on our legal spending outside of critical fundraising moments. In between these milestones, we adopted an 80/20 approach, relying more on off-the-shelf legal documents and templates rather than custom legal work.

One key lesson we learned the hard way is to always get a quote from your lawyers before asking them to take on a task. Don't assume that seemingly simple requests will be inexpensive — legal fees can add up quickly, especially when you’re working with multiple lawyers at different seniority levels (and varying per-hour rates!)

2. Contractors

As a startup founder, you'll inevitably face times when you're resource-constrained, whether it's in engineering, design, marketing or sales.

At Sesame Labs, we learned the hard way that the way you structure your contractor agreements can make a huge difference in your burn rate. We found that purely hourly-based arrangements are the wrong incentive model and can lead to unpredictable costs that add up in a hurry.

For example, we were working with a design agency. As we got deeper into product development post-launch, the agency suggested bringing on an additional designer. Over time, the design bills racked up to the point where it would have been much more cost-effective for us to hire a designer directly from the agency.

The key takeaway is to be cautious about relying too heavily on contractors unless you can structure the agreement on a fixed retainer basis (e.g., a set number of hours per month). Also, set clear performance goals to measure ROI. 

Be clear about the scope of work and deliverables, and don't hesitate to start with smaller engagements to test the relationship before committing to longer-term retainers.

If you do find yourself consistently spending a lot on contractors in a particular area, such as design, it's worth evaluating whether bringing that function in-house would be more efficient in the long run. While you may sacrifice some specialization, the cost savings can be substantial.

3. Coaches

In the startup world, particularly in Silicon Valley, there's no shortage of experts offering their services as coaches. For early-stage founders struggling with specific challenges — like executing an outbound sales motion or navigating a new industry — the promise of personalized guidance can be appealing.

Coaching arrangements can quickly become a significant expense, though — even if the per-session cost seems reasonable at first glance. Over time, those fees add up, and they can put a strain on your startup's lean budget.

Additionally, coaches are not accountable for results in the same way that an employee or advisor with skin in the game would be. They may offer valuable insights and advice, but at the end of the day, they're not directly responsible for your startup's success or failure.

Another potential pitfall of coaching arrangements is the inherent upsell. What may start as a single session or a limited engagement can easily snowball into a more extensive (and expensive) commitment. Coaches may suggest additional services or ongoing support, which can quickly balloon your costs.

While there's nothing inherently wrong with coaches trying to provide more value, be mindful of the slippery slope these arrangements can create. Incremental expenses can add up quickly, often without a clear ROI.

A more effective and cost-efficient approach is to work with advisors who are willing to provide targeted support on an as-needed basis. Rather than entering into ongoing coaching contracts, consider reaching out to experts for one-off sessions when you have specific questions or challenges.

4. Recruiters

Recruiters can be incredibly helpful in finding top talent for your startup, but there are some potential pitfalls of working with them — especially in the early stages when your business is still evolving.

Be thoughtful about where to use recruiters and where to rely on other hiring strategies. Engaging a recruiter can be a worthwhile investment for your core team members who will remain critical through any pivots. But recruiters may not be the most cost-effective option for roles that are more peripheral or whose scope may change as your startup evolves.

At Sesame Labs, we learned the hard way that you risk losing recruiter fees when you need to pivot and lay people off. When we made a strategic shift at one point, we had to let go of one person we had hired through a recruiter. Even though we negotiated with the recruiter to cover the next set of fees, it was still a significant financial hit at a time when every dollar counted.

Many founders don't realize that recruiter fees are often non-refundable, even if you have to let someone go due to changes in your business direction. If you're not careful, you could end up losing a substantial amount of money if you need to part ways with multiple recruiter-placed hires.

If you do decide to work with a recruiter, confirm that their fee is a one-time expense. Some recruiters may try to structure deals where they receive ongoing payments, which can quickly become unsustainable for a lean startup.

Another option to consider is using recruiters exclusively for senior-level hires while relying on other strategies, such as personal networks or job boards, for more junior or specialized roles. This allows you to tap into the expertise of recruiters where it matters most while minimizing your exposure to potential losses if your hiring needs change.

Ultimately, the key is to be strategic about when and how you engage recruiters. While they can be valuable partners in building your team, it's crucial to weigh the potential risks and costs against the benefits, especially in the early stages of your startup when agility and lean operations are paramount.

Essential lessons for disciplined startup spending 

Running a lean startup is not about being cheap — it's about being strategic and disciplined with your resources. By keeping things lean, you keep a close eye on spending so you can extend your runway, minimize waste and focus your energy and capital on the things that help you meet your goals.

As you work to optimize your startup's spending, remember these key lessons:
  • Understand why running a lead startup is important. Trimming costs can help you extend your runway and leverage your capital to find your competitive edge.
  • Know when to invest in top-tier legal counsel (and when it’s not as critical).
  • Opt for fixed-fee or retainer-based arrangements with contractors to avoid escalating costs.
  • Be wary of open-ended coaching arrangements and focus on as-needed expert advice instead.
  • Use recruiters strategically for critical hires, but be mindful of the risks and costs involved.
Have any ideas or suggestions to improve this article?