You can generate revenue to infinity, but you can only cut costs to zero.
This alone means that a bias toward frugality will probably cause you to spend time on the wrong things. It's the equivalent of a freelance developer who charges $100/hr spending 5 hours on Amazon trying to save a couple bucks on an iPhone cable. Cool, you saved $3. But you spent $500 to save it!
Of course, if you haven't found product-market fit, frugality can help give you more time to find it. But once you have a proven business, frugality is a death sentence. While you're trying to save $20/month on your email marketing tool and $50 on cheaper coffee for the office, your competitors will be spending their time and money to acquire your customers.
Generally, you get what you pay for. So if your gut is to always pick the cheap option, you're going to be using bad tools and hiring bad people, and creating bad products.
There are plenty of small companies that serve a small market and last for decades by being careful about spending. That doesn't mean scrimping on coffee, but it means not paying $20k for a stylish sculpture for your office reception or $2M for a beach concert with the hip artist of the day.
The exact same thing applies to personal finance. Often, working towards making a lot more money is the fastest way to get rich, rather than spending a lot of time eliminating small costs (e.g. cheaper coffee). However, for a typical person, eliminating big costs such as expensive luxury cars makes a big difference. If you want your money to last, you need to be frugal relative to the scale of your assets, revenue, and growth.
Only if you don't enjoy doing things like eating food and living indoors.
Obviously businesses and individuals cannot really reduce costs all the way to 0.
Same as how "You can generate revenue to infinity, but you can only cut costs to zero." shows the edge cases to build the intuition.
I've seen so many companies spend themselves to death and its easy to have it happen much faster than anybody in charge realizes.
I've also seen companies grow expenses as things go well and suddenly there's a massive downturn in the market and they can't recover in time. Meanwhile, more frugal companies have the runway to weather unexpected events.
So I still think there's more value in frugality than is generally accepted.
Generating revenue is the hard part in business, spending is really, REALLY easy.
But it's important to remember, if generating revenue is so difficult, you don't have product market fit or even a business then.
Pinching pennies is only valuable in the sense that it can extend your runaway long enough so you can find product-market fit.
It's not a means to an end by itself.
Irrational frugality is pretty much the default impulse of all American software engineers (and the entire HN crowd), so I don't think HN needs any more encouragement to be frugal.
The time it takes for a customer to pay back this initial CAC is called the "payback period" which can be 1 month or 10 years. The longer the payback period is, the more investment you need to bridge the gap. The business may be super-profitable from a unit-economic point of view, but from a cashflow point of view is a nightmare.
Businesses with long payback windows are very common, but if the theory is that a customer stays for 7 years and you are in the 3th year of your startup, you will have to convince investors that this is true which depending on the fashions of the year they will lean towards true or false.
That's one important point, the other point you mis is that fixed costs cannot be avoided and don't prove anything vs. the viability of your business. A good example is accountancy costs, office costs and hardware for employees... it's a must to pay for these things but every business needs them but they don't generate revenue.
Pinching pennies is a very healthy habit because again, everybody wants you to spend money (on them).. that's everybody's business model. Getting a client to spend money on you and getting enough of them to cover the variable and fixed costs is the real litmus test whether you have a viable business.
There are examples of irrational frugality that we can agree on like hiring a zoo of interns that then take up all your attention to manage and train but then immediately quit once they actually get some experience.
Another example is hiring 3 junior devs that can't match the output of 1 senior dev for a combined cost of 1.6 times the cost of the senior dev.
Either way, frugality is a good thing but obviously you need to make the money that you do spend count.
I'm coming at it from the perspective of the irrationally frugal (a common problem I see on HN and how engineers typically behave even when they've found traction).
You're coming it from the angle of the irrational big spenders (VC-funded stuff you hear about in the media ie. WeWork, etc.).
We're both saying: be ruthlessly rational with your time and money.
However, I think a bias towards spending (vs. irrational frugality) is actually much more rare than you think. Everybody knows about WeWork, but they don't hear about all the engineers who spent 6 months optimizing their AWS bill to save $500 when they hadn't even found product-market fit yet.
Developing a tech startup is hard, and 90% of the costs are usually in labor (real or opportunity cost if you are working "for free").
Trying to save a few bucks each month when you are paying engineers $10K+ per month just doesn't make sense. Many engineers are also not good at thinking in "analog" (vs digital) and obsess on things that just impact the wrong thing.
Those comments about people using a couple $100s for monthly SaaS service a few months ago baffled me. The real question is: do those multiply/improve the output of your most scarce resource?
Saving a couple $1000s per year is good all else being equal, but in the end it's creating $100,000s more that matters in business.
Focus on the right order of magnitude.
If this were true, everyone would do it. This isn't, actually, true at all.
You might say "in theory," but there is a finite amount of money, most of it isn't available, and of what is, most of it won't be interested in any single thing
Besides, more importantly, in practice, you can't just generate revenue. At all. Generating revenue takes the investment of work and money.
All you're doing is failing your null hypothesis using stories.
I can name a startup whose founders talked like you.
They burned more than $50 million in about four years. But they were always talking about how you can just scale revenue, so they needed to spend everything they had to scale sooner.
They had a staff of almost 150 people.
They never had 150 concurrents on-site.
They'd still be searching for product market fit today if they had had even some remote frugality. They'd probably have found something by now.
Spending $500 of time to save 10 bucks isn't frugality, it's idiocy.
Spending time reducing unit cost as opposed to customer acquisition or building features might be a different discussion, especially if the next marginal customer acquisition starts bumping up against your cost of services/product.
I could also argue my point about not being frugal doesn't mean "spend irrationally," but I think we're just arguing semantics in no true scotsman fashion.
I agree in general with the sentiment that people need to really value their time more than they do. It is a precious ever-depleting resource. That said, we mustn't discount the fact that:
1. One may get better at saving and wouldn't always have to spend 5 hours on Amazon when looking for better deals the next time around.
2. It is not just $3, but might also be that one is learning along way (reading reviews, getting better at identifying quality signals, etc).
3. Developing a habit because every buck one spends could have been saved for (future frugal expenses), because not every waking hour is worth $100 anyway.
4. Valuing all of one's time in terms of billable-hours could be actually used to justify not doing anything else at all; and life/learning/experiences would simply flash-by.
I suspect that the expectation value of cutting costs is going to be higher, but with a much lower variance.
Only if you have more work lined up than time to do it. Otherwise it's just another part of your day, that was never going to earn money.
And I assume the starting point, 5h on $3, was an exaggeration. There's time for saving money, and there's money that's worth the time to save. My point really is that 5h doing non-work hobbies, spending time with family, or whatever, isn't a 'cost'. Not even necessarily an opportunity cost, since for that there had to be abundant supply, that doing it now doesn't mean you're not doing it next week, that there's always more already lined up 'for free'.
Secondly, revenues can't go to infinity. Not only is infinity an uncountable times bigger than a Googol, but market sizes are limited. Organic growth is limited.
It is much easier to cut costs than increase revenue in business. This is why most large companies prefer to cut costs rather than invest in innovation.
The best entrepreneurs are frugal. Warren Buffett is famously frugal and prefers to invest in frugal entrepreneurs. To the point where Buffett once bragged about investing in an entrepreneur who was so frugal he resorted to counting the sheets of toilet paper at his business because he thought he was being cheated (he was).
In my experience, companies with full closets of office supplies and lots of stuff don’t last. Exception: when investors are plowing unlimited cash.
First rule of procurement is to get 3 quotes and second is to buy intelligently. Engineers shouldn’t be buying cables, and if you just buy the first thing you see, the pennies you miss add up. It also avoids putting you in the position where you’re firing a valuable engineer because he’s buying stuff inappropriately to accumulate loyalty points or helping out a friend selling stuff, etc.
Being frugal and priorizing business spending and time are not contradictory. Frugality is about spending less while getting the same value.
Have you ever seen a reddit thread on any personal finance related topic? You can find millions of people who regularly defy this logic every single day.
I think you may underestimate how, for many people (including well-off ones), getting a "deal" becomes the objective in itself.
You can also increase costs to infinity. Frugality doesn't have to be about cutting down on costs that already exist.
Edit: Even if the business looks sustainable just wait till a disaster like covid comes by and rocks your supply chain and your customers prioritize other expenses.
As many of the comments (correctly IMO) point out, VC-backed start-ups trade money to compress timelines: for example, hire in two weeks what a non-VC might be able to hire across two years. When you have VC funding and more of it is available, it is in your interest to leverage that money as efficiently as possible to make the case for growth and further investment. Frugality can further hurt you if you are in a VC-fueled industry race because you’ll be outspent and outbuilt by your VC-fueled competition, and it will be harder for you to raise $.
That said, if you’re a regular entrepreneur or business owner, the script is flipped. You are always working within the constraints of profitability and (assuming no major investments are made in you), access to capital is difficult and expensive - debt and credit financing can only grow as a function of revenue and needs to be paid back (whereas VCs give you ‘free’ money, free-as-in-equity). Given that, if you make a dumb financial decision it makes more of an impact on your business. While you still want to go in on big (validated) bets, in general it makes sense to err on the side of frugality and spend less than you bring in.
The problem is that regular entrepreneurs and business owners still must share the market with venture backed startups. You're always one pivot away from some hotshot startup or bigcorp going to war to take away your marketshare by forcing you to address that "the market can remain irrational longer than you can remain solvent" -- in order to compete with VC-backed startups, you need /more/ than just frugality. You need actually better execution -- execution which more effectively serves market demand than your competitors.
I used to be a lot more bullish about this before 2020's interest rate drop and subsequent declining bond yields, and the insane injection of capital into the markets. But now, I'm not so sure. Investors are reaching quite a bit further than I originally had expected in order to seek yield.
If you look at some startups, it seems like they're simultaneously frugal and not frugal. E.g. early Google 1999 paid for meals cooked by a chef and onsite massage therapists even though they had no revenue and profit until 2002 -- but on the other hand -- they were very frugal with spending the least amount of money for computer parts[1] and datacenter rack leases.
Likewise, Amazon was famous for being cheap by having employees make desks out of doors but they were bold in spending money on acquisitions that were strategic to their goals or taking expensive risks on Prime's "free shipping" getting abused by customers.
The way to reconcile the inconsistency is that being frugal can't be applied in every area of the company.
So maybe a more realistic tactic for a new YC company is ... it's ok to splurge $5000 on an automatic cappuccino machine in the office for employee well-being, but at the same time, be ultra frugal in AWS costs and analyze the line items like a hawk to make sure the developers are not leaving up idle EC2 instances and wasting money.
[1] https://commons.wikimedia.org/wiki/File:Google%E2%80%99s_Fir...
Sure it’s great that you’re saving money somewhere, but you’re still handing the limited runway money hand over fist for unnecessary luxury, no matter how much you save on the little details. If you were actually frugal, you could have much better service without having to worry about each line item as much.
Penny-pinching AWS cost makes sense if and only if you want to pay a team which has "responsively manage compute resources" as 1 of 3 ongoing focus areas.
Frugality =/= cheap. Frugality is about spending wisely; getting good value.
Though yes EC2 is not the cheapest but if you're using "only that" (or maybe S3/R53, etc) and being cheap I can accept you're being frugal.
Didn't this bite them too, via a lack of ECC and associated software development costs? Meanwhile, Amazon used off-the-shelf expensive Sun/HP machines for many tasks.
This is such a stupid idea. At some point it would make sense to start making your own optimally designed desks.
Not to say that frivolity is good and frugality is always bad. But it shouldn’t be an obsession.
As an employee I would much rather work for a company with soaring revenues than one with quickly decreasing costs :)
There was a post on HN recently about a SAAS that listed out all of the SAAS products they were using, and for a team of 5 they were purchasing g suite, an email productivity "enhancer" to avoid conversations moving to slack, and a meeting scheduling tool, for 10% of their revenue (something like $150/month). Being frugal would likely have cost them less than percentage points of productivity, and increased their runway.
The cost of a kubernetes cluster while working on an MVP is not a unit cost. It's a development cost. If they don't even have the MVP yet, then I don't think it's fair to say they're going to pay a multiple of that kubernetes cost for every sale - I could be wrong of course, the details matter.
Your second example to me seems more clearly totally fine. Those costs scale with the number of employees, not with the number of sales. If their sales scale linearly with their number of employees, they are totally screwed under the VC funding model. As somebody upthread said, frugality is important for traditional businesses, but not so much for software-y startups.
$150/month is peanuts for their runway almost certainly, too. Think about it this way: even at a meager $50k/employee/year, their costs are 99.3% in the employees, and 0.7% in those software products. Or think of it this way - $10k will cover the $150/month for over 5 years, which is a really long time.
Cost and revenue are not related like that. You're thinking of profit margin, but even then it's not that simple. Most expenses can be written off, but profits are taxed. Revenue can be increased by spending, by adding features that increase demand, or just by plain advertising. You can have high profit margins but low profits due to low revenue, all because you cut spending.
Moreover, for a new company, being profitable is far less important than (an expectation of) growth. A mostly unprofitable company like Tesla has incredibly high expectations of the future already priced in.
Love this.
The one caveat though, and why it's important to keep costs low (maybe wait until after you sell the startup), is because when you are profitable, then you are in control of your time and get to set your own schedule. Or, in the form of the above quote: your revenue can go up to infinity but your time left is capped at 100.
This presupposes that you can get to high marketshare profitability while keeping costs low. That's not always realistic. A more growth-minded competitor can push you out of the market entirely by willing to execute where you won't.
It hadn't yet crystalized in my mind but to clarify my advice is keep your personal cost of living low as a rule of thumb. Optimize for free time over more money.
For business, spending money is essential. Ideally try to spend other people's money.
"Would I spend this capital if it were my own money?"
If I answer yes, then it is an automatic approval. Examples of this being petty cash expenditures like one-time licenses for software tools, or very-low-cost on-going services (<$50/m).
If I answer no, then I usually have to engage in a conversation with other stakeholders in the business to build an understanding of how the expense will add value to our business over the long term.
What I like to try and do is push all purchasing decisions into the trivial camp if at all feasible. Outsourcing to 3rd parties is the most obvious way to do this. E.g. instead of hosting your own git repositories on your own servers, look at using Git[Hub/Lab] public/enterprise. This can take a $10k+ capex and diffuse it out into a monthly concern that is lightyears easier to account for and change over time. The challenge is making sure that you aren't outsourcing your key value drivers to 3rd parties. Compliance & industry fit are also a consideration here. Developing some things in house can potentially save you a ridiculous amount of money depending on the specific problem you are trying to solve. And, in-house development will ultimately contribute to a far more important basis of value - your company's intellectual property.
If I ran a digital agency, I could build websites, but I could also hire people to build websites, is that outsourcing my value driver?
- They can build better overall experiences (not just the website, but whole UX). Some agencies/ people do have success in outsourcing the technology, because they might do QA and leadership, which these off shore teams would not get right.
- They have deep expertise in some technology which you can't just hire someone for. I guess you can argue, everyone has a price and a company can just pay that rate, but if that employee is doing all the work, that employee would probably have a high rate and would be, themselves capturing the value, not the company. I think this point is almost just a repetition of the first example.
In my other life when on job interviews sometimes they would describe various perks (free food, drinks, twice a year retreat, pool tables, Friday night outings etc. etc. ) as an advantage of working for their company.
Maybe I am weird but my internal thoughts were - can I just have it in cash and I'll find my own ways to organize my life. Do not need any help in this department.
These things have the benefit of enabling you to get to know your colleagues, establish networks, break down communication blocks, etc. In other words, in addition to being fun, they also benefit you as an employee and the company overall.
That's why the companies spend money on it and in my experience they get return on it.
Hope this helps.
Frankly simple work related interaction were more than enough for me to "get to know". If both parties felt interested enough we'll hook up out of work. At least that was my experience.
Think about it like this: "employer-mandated fun creates opportunities for me to expand my network and connections which help me make more money. As an added bonus, I might as well enjoy it."
What wasn't fun was the month of extreme anxiety (I have social anxiety) and sleepless nights that led up to it. Up to the moment of departure I fantasised about "accidentally" oversleeping and missing the coach.
It's pretty hard to assess (at least for me) whether the upside (fun) was outweighed by the downsides (prolonged feelings of anxiety). In all honesty, I bonded more with colleagues on typical Friday nights at the pub (yeah alcohol, but plenty didn't drink).
In my life, I found that "diving into" the anxiety repeatedly helps prove to me (both logically and emotionally) that it's actually fine and reduces anxiety over time. So for me, the experience you describe is valuable because it contributes to overall "liberation" but it may not be that way for everyone.
How is it for you?
Erm, so we're mandating what people should do now? Yours seems to be a rather black/white view of such events, when (since it involves humans) it's on a spectrum:
There are people who do not want to spend their time with their work colleagues.
There are people who do not want to be forced to spend with their work colleagues.
There are people who dislike that unless you spend time with their work colleagues in corporate sponsored events you will be sidelines.
And that's assuming that the corporate event is good at all. Which, quite frankly, most aren't.
I am just a guy on the internet but I've been around the block so I share what I truly believe is the best advice.
>> unless you spend time with their work colleagues in corporate sponsored events you will be sidelines.
That's a naïve view. People don't sit in a conference room saying "ftoscano didn't come to the bar last night, let's ostracize him" - it's just that the more opportunities to bond with your team that you pass up, the worse your communication with them is (compared to what it could have been if you invested in it) which legitimately makes you less impactful at work.
>> And that's assuming that the corporate event is good at all. Which, quite frankly, most aren't.
Debatable but not the point. The point is that these things already exist and they are opportunities for you to build up your career (and maybe even allow yourself to have fun.) You can chose to hate it and not participate but like I said, that's strictly worse for you so why adopt that attitude?
If every potential detractor involved just says to themselves "this is what everyone else likes, so I'll fix my attitude and head to the bar", you can end up with several of them contorting to fit in, and then you're just cargo culting a good culture instead of really having one.
If you see $5 laying on the ground, it's better for you to pick it up. That's different than saying we must structure society in a way that people are relying on finding money on the ground (which is where you are taking it.)
It's OBVIOUSLY possible to have teams and employees that operate fine without these experiences. My point is that these experiences are just opportunities to make it better (like picking up the $5) so why wouldn't one try to be the kind of person who is happy to pick up the $5 rather than someone who grumbles about it?
Sure, it's good to find and pick up $5 on the street, but in this case it will inevitably lead to a place where people have to rely on finding money on the ground.
G-d forbid! Conformity is the worst thing ever. I am probably more in favor of that view that anyone else. My appreciation for weird people is extremely high.
I am approaching this from a different angle - from the individual's point of view. As an individual, you "should" want to be as capable and versatile as possible. The version of you which is capable of enjoying socialization with your coworkers is strictly more flexible that the version of you that fears it. It doesn't take away your option to go home and do introverted activity when you want to.
I have infinite examples of this in my life. Just a quick one - I grew up extremely introverted and shielded from human interaction, spent much of my (especially) highschool and college years behind the computer. This was very helpful to me developing great technical and developer skills.
Fast forward many years, I had the opportunity to go to business school. One of the most painful parts of b-school for me initially was the happy hour. I didn't know how to small talk or just hang out and "be." It was rough and I hated it. But over the course of the years, I got used to it, relaxed about it, and found myself enjoying it. It's one of the things that enabled me over time to move to product management - the realization that I went from someone ill at ease speaking with new people to someone who doesn't think twice about it.
Did I "conform" or lose a part of myself? No, I am currently hiding out on the balcony learning React and playing with Serverless while my wife is hanging out with the baby. I am choosing right now to spend my time not much different than how I spent it in high school, and I am loving that. The point is though if I had a social family or work obligation to go to in the evening, I wouldn't lose my shit about it anymore - I'd get dressed, go, enjoy it, and possibly get the networking/wife brownie points out of the experience. It's a strictly better way to be than dreading/avoiding it.
PS: thank you for your comment, it made me reflect on what I am trying to convey and, hopefully, convey it more clearly in this response.
Frugality can mean being penny wise pound foolish. Not buying tools people need, building things when you could buy them, and settling for less. It's hard to evaluate people on frugality without it being about cheapness. I would argue buying top of the line monitors, software, computers and chairs for your engineers is the frugal choice with the best mid and long term value for your money, but will it look like that to others? Likewise I've seen cultures where the CTO had to approve buying a $50 replacement laptop charger - that's just a waste of time.
That said, leadership should be very deliberate in how money is spent. Taken too far, you can end up with a bunch of high cost low value tools. For example many times I've seen AWS bills where a few weeks of work means millions in savings per year, or tools that cost $10s of thousands per month but are only used by 1-2 people. And that adds up.
To give a couple of examples. The office was kitted out with poor monitors - cheapest Dell sold. Some people bought their own but most people were fine with them - they're just monitors and they're 'fine'. Then a small group were rewarded with 'premium monitors' as a prize for some internal competition - and this did cause annoyance, as it recognized that the company knew it was being cheap.
Second example. "We're getting new chairs!" Supplier dropped off half-a-dozen different models for us to try out and then we collectively chose our favourite. Except we couldn't have it, as it was too expensive, and we got the "second choice". Now that second choice was amazing compared to what they were replacing. An office full of premium ergonomic chairs cost the company a small fortune - but decision was tainted with cheapness. We weren't worth the chair we'd chosen. If they'd just pulled the chairs they couldn't afford from the competition, it would have cost the same and made us happy.
That just seems like a very poorly executed trial. Clearly the company should have decided on its price limit up front and brought in chairs that conformed. It's not even really unreasonable to decide that the price of Mirra 2s (which are perfectly good chairs) is fine but Aerons is not. But, in that case, don't bring in Aerons for people to try.
Counter-example that springs to mind is AvE's Juicero teardown - https://www.youtube.com/watch?v=_Cp-BGQfpHQ&ab_channel=AvE
Their product was lavishly over-engineered and beautifully made at vast expense - they were never going to make their costs back however over-priced their fruit-pods were. The more customers they got, the more it was going to cost. Frankly didn't make any difference if the Juicero staff were getting free meals or not (or had their salaries halved) - the lack of frugality at the core of their business doomed them.
This is an interesting line, at the time AIM seemed like it was here forever. And honestly, I still have better memories of the usability of aim than modern services.
Would be interesting to take a deep dive into all the factors, was it mobile and phone text messaging that did it in?
Frugality is being cheap just for the sake of not spending money. Most startups on the other hand have more incentives in maximizing their spend towards increasing and retaining their current and future cash-flow.
If we combine that with network effects, your cash-flow is technically growing relative to the exponential growth of your network / userbase / community.
Related post: https://wallstreetplayboys.com/become-a-minimalist-dont-be-f...
For example: 1) no free lunches or snacks (though there was always lots of free food around from leftover meetings with customers); 2) "swag" for employees once per year, one item, thoughtfully chosen and good quality. This resulted in everyone getting really EXCITED about it and rallying around it; 3) a Bevi machine (effectively a bubble water fountain) instead of coolers of free drinks.
For instance, when you are buying equipment, you don't buy the cheap stuff just because it's cheap. You buy the best stuff the first time, because you will usually save money over the long run. If you bought the cheap stuff first, and it didn't work or didn't last, but then bought the best stuff later, now you paid extra and wound up at the same place.
This doesn't apply to everything, though. The boss I had who operated this way strictly decided he didn't want the $80 video card in his computer, he wanted a $200 one (which back then was like buying a GeForce 3070 just to run spreadsheet applications on a single monitor).
Cue: Sam Vimes's "Boots" theory:
"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."
I help run a physical goods business. Margins on these types of businesses (for the most part) 10-15%.
If we find a way to reduce expenses by 0.5% (of revenue) by spending 10 hours, it's worth it. On the face of it, it seem trivial and not worth it. But at the end of the year, these cost saving tactics add up and contribute to profitability. Sometimes it's the difference between giving our team a bonus or not.
Whereas in a SaaS business, the margins are far higher and your time is better spent (probably) on increasing revenue, rather than shaving expenses.
As someone already said, there's only so many expenses you can cut.
By way of analogy, consider a household that is really frugal and doesn't spend most of the money the could spend. If that is part of a goal to put their kids through college with no debt, save up to buy a business, pay off debt, etc. then there is a plan. If they are just stuffing money away into a mattress it isn't quite the same.
There's obviously no one way to success in entrepreneurship. If times are lean and you have no easy access to money, sure, being frugal is phenomenal. If you're a 40 year old PM at Facebook thinking of doing your own thing? Pay to delegate every single thing you can. All in all, play to your strengths.
I know Bezos' perspective was that the door desks were a way of creating the culture he wanted in the company both for employees and for investors. A desk from Costco would probably cost $400 to $2000 whereas the cost of what you need for the materials for a door desk from Homedepot is $50 to $75. Having put together some furniture from Costco, I'd guess that the time spent creating a door desk is probably less than the setup time for a Costco desk. Folding tables might be another option in the same price point / setup time as the door desk.
You can't architect a complex application stack with a couple of interns and a newbie developer with no oversight. We'd pay below-market salaries for senior engineers and architects, because "a programmer is a programmer", and we'd lose them.
We'd refuse to pay $150 to have our DevOps guy get his AWS certification because "he may get a better job and leave"... which he eventually did anyway.
Yet the same company was burning $4,000 a month on AWS services that were severely under-utilized, because the DevOps guy left and no one knew how to optimize our AWS usage.
None of these products eventually succeeded. One of the two companies above shut down years ago after a multi-year schedule slip that resulted in the private equity funding drying up. The last time I looked, the other company has been struggling with cash flow problems for the better part of a decade, barely making ends meet, slashing salaries and jobs several times, pushing the better devs to greener pastures.
A few other companies I worked for had sound leadership and a clear vision. Not being a unicorn or a FAANG means we paid above market average salaries and empowered our engineers to make decisions (and mistakes!) to retain great talent and build cool stuff, which we shipped and sold. We invested in growing our people while keeping other overheads (such as unused conference rooms, wasteful pantry supplies, AWS expenses, etc.) low.
What separates successful people and companies from the rest is "investing in the right stuff and ignoring the rest."
Your whole success depends on your ability to identify that which gets the bulk of your resources and that which gets nothing.
But once you have the outline of the budget, you can look at it and say, "well, we aren't using that, actually". It's just really dangerous to go in doing that first thing, since it takes possibilities off the table and locks you and your staff into the logic of the balance sheet, and in businesses where growth can scale immensely, you have different ways to save at different scales.
The graveyard of dead startups is littered with stillborn corpses as a result of founders who focused on frugality to feel productive rather than engaging in the necessary user research and product experimentation to validate product-market fit. If nobody wants to buy the thing you made, it doesn't matter how cheap you can make it. You won't survive long term.
1. They are spending money foolishly to get things that will not actually help them achieve thier priorities in their context.
2. You misunderstand their context or priorities and for them to follow your advice would be penny-wise and pound-foolish.
Monetary Frugality can waste time, trust, team performance, or all three.
The countability of money creates a special case of the https://en.wikipedia.org/wiki/Streetlight_effect.
If you are not taking investment, or otherwise get investors that are in for the long haul, and you intend to fund yourself off your revenue, then cost savings matter. This is usually appropriate for small niche markets that are too small for institutional investors. Note, such niches can still be million dollar businesses.
If it's heavily financed in a winner takes all environment where growth is the only metric that matters frugality is not required.
If it's boot strapped (no investment) and/or the product/market fit is not yet established then frugality is required.
I've only ever started businesses that are bootstrapped. It requires a huge amount of patience!
Startup ecosystem just likes to create their own terminologies for things which we know is good for business and done all long.
1. Having a non-wasteful, nonindulgent culture. I've heard culture described as "a set of rules for what you will tolerate" and you don't want to tolerate waste. If you're trying to grow fast you typically need to spend money to make money, but it's important that a culture of low-consequence spending doesn't turn into a world where you're throwing money at anything under the sun just because you have a lot of $ in the bank.
2. Having a handle on your gross and operating margins. It's really hard to dig yourself out of a whole of low/negative/declining margins, as they are often indicative of structural assumptions that get built into your business model.
In fact, staying power is IMO the most critical determinant of success. If you can stay in business then you can learn from your mistakes and pivot. In that case the discussion between frugality and speed is all about calculating your staying power, which goes back to your source of funding :)
Current state of intel is an entirely different matter.
Jokes aside. It is just not hip to talk about being frugal. You will get media attention if you say you spent million dollars on interior of your startup. That will not happen if you say you bought low-cost or second-hand furniture for your startup. Most long running successful startup founders are frugal. Quitely build the company with minimum financial overhead. The news about "non-frugality" from startups is mostly for PR purpose. If it is not, then it is stupidity on the part of the founder(s).
So yes at the end of the day, if you spend less (ie. being frugal), you will have more time to finalise your technology.
2) $$$ for market fit: I think the only advantage of not being frugal is only when you take the ride with your friend called Market-fit. At this stage you have to go fast. Really fast. So, having good money is very good.
Different people mean different things by "frugality", but "save money at all cost" doesn't make sense as an implementation.
If you are a VC-funded growth company, trading money for time is often one of the smartest decisions you can make.
It’s the old saying: penny-wise, pound-foolish.
Growing your team is going to add an incredible amount of friction in terms of increased demands on collaboration and communication, and I've worked for many startups that have assumed that the processes that worked well for them as a 10-person startup would continue to function at 100 people. What nearly always ends up happening is that everything grinds to a halt, and often the company ends up moving slower than they did when they were much smaller.
That doesn't mean that you shouldn't grow, but you should be careful about it. Some absolute key things to internalize before you grow your team substantially:
- Everyone can't have input into every decision anymore. You're going to have to compartmentalize, and trust that product is going to build the right products, and marketing is going to launch the right campaigns. This is doubly true if you're a founder or CEO - your team can scale, but you can't, and at some point you can't be the final say on every little decision anymore.
- You need to be thoughtful and deliberate about how departments and teams communicate - "just bug someone in the department on Slack" isn't going to cut it anymore after a certain point.
- Whether you want to or not, you're buying into a lot of more traditional roles in a company that you probably thought you were too cool / modern for as a tiny startup. A 100 person company without HR isn't hip and modern, it's a massive risk.
Spend on the multipliers, great people, good hardware, etc etc. save on the subtractors. I just spent a few grand on a laptop for a new employee, and $12 on a laptop case.
We saved a few grand a month by having an office which is outside of the city center (but same travel distance for employees).
Anybody else take this approach?
I think people should be frugal. I don't think a company should be frugal A frugal company is like a boxer in a fight saying don't punch me.
This could be for many reasons. Two being; 1) To attract talent 2) The founders ego
Most VCs or Angel Investors want to see frugality.
Similarly, another day I was trying to be frugal with time and didn't refactor a React component properly before building plenty of features on top of it. And now I'm facing the consequences and have to rewrite the whole thing.
Also: When I was 17 I got my first job as a full stack developer. My boss at that time was being frugal and underpaid me and so I left 3 months later. It has been 8 years since then and his start-up has somehow survived and is doing decent. But I'm pretty sure my current start-up (which doesn't underpay talents for frugality) will be way successful than his.
In some cases, you do want to spend time to save money, while in other cases, you want to spend money to save time.
It's not as simple as optimizing money spent. It's usually "money + time" together.
Money is extremely cheap and easy right now.
That said, not wasting too much time to save a few bucks is also underrated.