The Dropping Cost of Entrepreneurship

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

Advertiser Disclosure ▾

This page contains affiliate links from which we receive a compensation. Like many publications Wise Bread is supported by affiliate commission from partner companies whose products appear on our site. This may influence which products we write about and the location and order in which products appear. We aren't able to cover every product in the marketplace.

Wise Bread Picks

• Travel Rewards Credit Cards
• Cash Back Credit Cards
• 0% Balance Transfer Credit Cards

Starting a new business sounds like an expensive proposition — creating a new product, printing up business cards, and all the other nuts and bolts that go along with setting up a company — but the cost of entrepreneurship is dropping. It's not uncommon for a new business owner to pay for a website and little more; if the business offers services rather than products, there may be nothing else necessary. Depending on where you're based, you may need a business license, but you can skip renting office space, printing business cards, and many other steps in the short term. You may need all of those things down the line, but technology has made it possible to start a business without them.

Not Just for Service Businesses

The renaissance in entrepreneurship is caused by the sheer number of alternatives to starting with a big investment to manufacture your inventory before you start selling. Four years ago, Shai Atanelov started Bigtime Wireless with less than $1,000. He had an idea for targeting a niche within the cell phone market — unlocked phones — and launched a home business to pursue it. Now Bigtime Wireless has eight employees and has provided a base for Atanelov to launch two more businesses. "My initial investment was around $900. It included the fees to open up a business in New York and depositing $100 into a business bank account. The rest of the money was used to hire a website designer and to use for Volusion's shopping cart fees, a SSL certificate fee, and a merchant account setup fee. I did not have to buy any inventory, as I made contacts in the cell phone industry in the USA and abroad that agreed to dropship cell phones for me."

Dropshipping — arranging for a manufacturer or wholesaler to ship your product directly to buyers — is one of the simplest ways to quickly start a business focused on selling products. There are others, of course, including selling affiliate products, arranging for a limited manufacturing run, or creating and manufacturing your product yourself (most common among businesses selling information-based products). With these methods, starting your business is often reduced to building a website and putting a marketing plan into action.

Keeping Costs to a Minimum

For many entrepreneurs, there's one simple way to reduce costs: Do everything yourself. Atanelov said, "I did all the product listings for about 500 cell phone models manually. It took me about two weeks to complete. That probably saved me well over $1,000, since the cell phone listings were quite technical, and a freelancer or company would have charged me at least $2 per listing."

It's worth considering what your business will need to run and seeing where you can invest time if you're looking to cut costs. Marc Anderson, the owner of Talk to Canada, kept his initial investment under $200. "Before I built my first website for TalktoCanada.com, I bought a book at the local book store about Macromedia Dreamweaver (now Adobe). It wasn't a book on theory but based on creating a sample website from start to finish. So I spent the next three months, when I had time, trying my best to follow the sample instructions from start to finish in order to build a website. After mastering the basics, I used this knowledge to create a very simple website for our business which has now been updated four times. The fourth time, we had enough cash flow to finally hire a professional company to make it," says Anderson.

It was a large investment of time for Anderson, but beyond his website, he needed little else: "I spent $60 for a business license here in Ontario, Canada, and another $100 or so on setting up my domain name and hosting account." As his business has grown, Anderson has also reinvested profits in the company, paying for not only ordinary operating expenses but investing money in search engine optimization, advertising, and other marketing opportunities.

The True Cost of Entrepreneurship

It's worth noting that while the cost to start a business is less than it might have once been, the costs associated with actually running a business remain. No matter how little you started your new venture with, you'll still be expected to pay taxes. Management costs, such as those associated with keeping your books or running payroll, will still be present, especially as a new business grows. The real dropping cost of entrepreneurship is what it takes to get in the game and start earning income to offset those expenses. Since Atanelov launched, he has put more than $20,000 into the business, taking a portion of his profits and investing them back into the business.

The odds of being able to keep startup costs to a minimum while growing a business fast enough that you can afford to reinvest part of your profits and still support yourself are also improved if you have a good working knowledge of business. Anderson took on a few odd jobs after completing a business degree, then jumped into running Talk to Canada. While Atanelov was a teacher prior to starting his business, he had already been selling cell phones through eBay in 2003, which allowed him to study the market before diving to running a full business.