A Secret to Self-Employment Success

There’s a little-discussed key to self-employment success: You need to be a cheapskate.

No, you needn't treat workers like coolies nor comparison-shop paper clips but especially in the beginning, you must spend very wisely. Here's what I'd do:

• Provide a service rather than a product. That way, I won’t need to buy inventory, let alone a storefront.

• Run the business out of my home. Even if I were living in a studio apartment with baby in tow, I recognize that avoiding rent will save me a fortune each year, money I’ll need for more important things.

• I wouldn’t spend a dime on redecorating nor buy more than basic Office Depot/Ikea furniture. If I need to see customers and worry that my office will turn them off, I’ll meet them at a coffee shop, halfway between my office and theirs.

• I’d hire independent contractors for $15-25 an hour to do work that would free me up to make much more than that per hour, for example, by selling my service. I’d also hire a contractor to do work I can't or don't want to do: for example, creating a database and maintaining accounting records.

• I’d think three times before hiring anyone as an employee. The payroll taxes are onerous as are employee rights, for example: 12 weeks of family leave (every year! and Obama wants it to be paid leave) and ever growing rights to sue for wrongful termination. Most startups are wise to use only contractors, on an as-needed basis.

• Buy used or not-state-of-the-art technology. For example, Dell sells state-of-the-art laptop computers for $1000+ and one with technology good enough for all but power users for $399.

• Is it worth comparison shopping? My rule: If I'll likely save $50 or more per hour for my efforts, I will. I routinely use Amazon to shop—it sells nearly everything, its prices are competitive (usually offering free shipping) and it lists affiliated retailers and their prices. So in no time, I can comparison shop.

• Let’s say my business does sell a product that I must purchase from a manufacturer (or if necessary, a middleman.) I estimate what I’m willing to pay in light what the cost of manufacture is likely to be. So, for example, if I were importing eyeglass frames, I’d think, “The raw material costs pennies as does the cost of manufacturing. After all, we can buy 1,000 paper clips for 50 cents. Eyeglass frames aren’t that much more complicated. So, I’d look to pay approximately 50 cents per pair. I also realize that eyeglasses will likely cost least if manufactured in a low-cost country, so to find a manufacturer, I might, for example, Google "eyeglass frames, manufacturer, China.”

Of course, there's more to running a business than being a cheapskate but that's a necessary and underdiscussed key to success.