I would guess that it's bad for a startup to blow through their investment money, but how big of a factor is day to day frugality for a startup?
However, I'm beginning to notice now that our customer base has grown and our revenues have doubled a couple of times over since our time in YC that what used to seem extravagant (paying people to do things for us) is now becoming the smartest way to make problems go away. I just paid Google $500 yesterday to handle search on our site, because it is a problem that has effected me on a couple of occasions, and I decided that even one more day of me fighting with full text search in MySQL and PHP (which is not a comfortable language for me to work in, as I use Perl mostly) was one day too many--the opportunity cost was just too high, when that one day spent talking to customers could close a deal worth many times the $500/year that I pay for Google Custom Search.
But, that's frugality of another kind (one that considers the value of both time and money), of course, so it doesn't invalidate the idea that frugality is pretty much always a net win. I just thought it worth mentioning since I've seen plenty of entrepreneurs take frugality too far. Colocating their own box instead of renting a server in order to save $10/month, for example...if you have a single hardware problem during the 18-36 months that the server is in service you end up with a raw deal (because you either have to go to the colo and deal with it, or hire the colo service folks at $100/hour to deal with it). If it's not the focus of your business, try to find someone else who does have that as their focus to do it for you. Work on your differentiating factors, not the day-to-day crap that every business has to have.
How many lawyers/doctors/executives do you know who do handyman work? It is just so much more cost effective to pay someone to fix this or change the oil so that the person can get another billable hour or another patient or another business deal or address client/customer needs? So I won't quite call it frugality, but more efficiency. The question becomes "are you efficient with your money and time?"
I think the ones who stray from "frugal" to "cheap" are failing to consider the value of what they're spending their money on, and rather focussing on the number of dollars that are leaving their account.
For the same reason, it's bad when founders can't explain what they're doing concisely.
Many startup founders don't have good economic intuition, and this expresses itself both in a lack of frugality, and an inability to come up with a realistic business model. In other words, similar skills and experience are needed to answer both these questions:
1. How long do we need our investment money to last, and what is the best way of spending it over that time?
2. What kind of products will people will pay for, and how much will they be willing to pay?
So you'll often see a startup which is spending money unnecessarily, and also finding it impossible to bring enough in.
On the second point, some startup founders have a sense of 'entitlement'. By this I mean a belief that the world owes them a good life without them having to earn it. Perhaps this is because investment is too easy to come by in the current environment.
Instead of feeling a heavy sense of responsibility and guardianship over their investors' money, and focusing on providing a return, these founders think they've been given a free ticket to go pursue their dreams. This will express itself both in a lack of frugality regarding money, and also an unwillingness to put in the long hours necessary to make their startup succeed.
It takes a lot of discipline to raise a lot of money but still keep the same amount of speed/focus as you did before you raised the money.
http://www.iwillteachyoutoberich.com/blog/cheap-versus-fruga...
Being cheap means spending as little money as possible often ignoring quality and efficiency. Now frugal, might not necessarily be the cheapest but it is the best value.
From the article above:
"Cheap people think short term. Frugal people think long term."
>One bedroom units here are priced from $2500 to $3000. Two bedroom units are priced from $2550 to $3300.
You're right, it's definitely not too bad if you have three or four people in a two bedroom. And it's also furnished and on a 3 month lease.
Be careful with money, but be careful to also spend money.
but there are two things to remember:
- your time is a lot more valuable than you think (as others have pointed out)
- often money, wisely allocated, (i.e. hiring a couple engineers or investing in a good work environment, not all-around extravagant spending) can help you get to market and achieve your goals faster
and since speed is a startup's only real advantage, this is often the difference between a 1 or 0 outcome.
But, you have to value your time properly. Otherwise your perception of being frugal is really just an accounting error.
Our competitors outspend us by orders of magnitude. But we've been frugal and focused. So while they're worried about raising their series X and lining up an exit, we're worried about serving our customers better and how to spend our profits. I wouldn't want to switch places.
oh the things i would do differently, and well, the things i am doing differently with social helix.