Categories: Business

Target Global: 5 Founder Strategies To Conserve Cash

As we turn the calendar into 2025, it’s now clear that the cost of capital is set to remain higher for longer than most of us expected at this time last year.

In December, the European Central Bank cut its target overnight lending rate from 3.25% to 3%, providing some marginal relief to borrowers. The U.S. benchmark rate remains higher, at or above 4%.

Both now seem poised for only modest declines in 2025; by 2026, they could begin ticking up again.

“Persistent inflation has caused central bankers to reassess their monetary policies driving an increase in bond prices, ” says Shmuel Chafets, co-founder of European venture capital firm Target Global. “As a result, interest rates on commercial loans are on the rise once again.”

Needless to say, this is unwelcome news for startups seeking outside capital to fund growth (or simply to keep the lights on). However, it may be a blessing in disguise for cautious founders who now see an opportunity to “grow smart” and conserve cash while doing so. With these five cash conservation strategies, these leaders might just bridge this uncertain period without returning to unfriendly capital markets.

IMAGE: UNSPLASH

1. Pool Resources With Other Startups

Very early-stage companies can “virtually” pool resources with peer companies by joining startup incubators or accelerators.

With scale, this becomes impractical, but opportunities remain for legitimate resource sharing, according to Faster Capital. To do so, founders should “clearly define the objectives and expected outcomes of the partnership, identify complementary resources and capabilities that can be shared for mutual benefit, and establish open and transparent communication channels to foster collaboration,” they say.

2. Keep “IRL” Expenses Low

Every founder knows (or should) that it pays to run your startup lean. Many fail in this despite their best efforts, of course. To increase your chances of succeeding, avoid temptation — especially the impulse to inflate “in real life” expenses like unnecessary office space, extravagant catering and superficial employee perks. Focus on the stuff that actually attracts and retains talent: competitive pay and benefits, a flexible work environment and a mission-driven culture.

3. Hire On An “As Needed” Basis

Knowing when it’s time to hire your next (or first) employee is more art than science. However, there are signs, says Barbara Neff of Gusto Talkshop.

One big, flashing warning sign is higher-level employees consistently doing rote work. “If you or other highly-skilled employees are performing administrative tasks that are essential but require low-level skills, that’s counterproductive in the long run,” Neff says.

Other signs include escalating overtime compensation, declining customer satisfaction, lost business opportunities and a general feeling that you have too much on your plate to manage the business effectively.

4. Leverage Contract Labor (Local Laws Permitting)

Before you hire a full-time employee, investigate the possibility of leveraging contract or temporary labor instead. After all, all else being equal, full-time employees are more expensive than contractors.

Only about 62% of the cost of a full-time employee is wage compensation and payroll taxes, which you don’t have to pay on contractors. The remaining 38% is benefits and other ancillary expenses, according to Benepass.

5. Focus On Your MVP First

The simplest (if not the easiest) way to stop burning cash is to start printing it. So look for any opportunity to shorten your development timeline and get a minimum viable product (MVP) out the door sooner.

The thing about an MVP is that it’s “good enough” but not sufficient. It’ll earn you some cash now, sure, but it’s not what you want to build your business on. Getting it live is cause for momentary celebration, not taking your foot off the gas.

Make Your Cash Plan Now

Most startups fail within five years. The survivors are more likely to have engaged in comprehensive, long-range cash planning from the very beginning. They are also more likely to have taken measures (perhaps in conjunction with that long-range plan) to conserve capital at an early stage.

In short, they are more efficient with their resources.

Will you follow their cautious but steady path? Or will you take your chances on a higher-risk, higher-reward endeavor, banking on the quality of your idea and the strength of your team to see you through?

Either way, you need a plan now, before it’s too late.

Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.