Stay Hungry, Stay Frugal.

How being frugal can be the secret weapon to your startup’s success.

What being frugal is: it is being “economical in use or expenditure; prudently saving or sparing; not wasteful.” I see being frugal as making decisions based on maximizing value for money.

What being cheap is: it is being stingy and unwilling to give or spend; ungenerous. A “cheap” product or service is something that is “relatively low in cost; inexpensive or comparatively inexpensive.” I see being cheap as making decisions based solely on reducing or minimizing cost, without regard to value.

Being frugal ≠ Being cheap

Be frugal. Don’t be cheap. Hire the best and pay them well. Don’t waste money on stupid things like expensive business cards.

This holiday season, I’ve spent a lot of time thinking about the concept of frugality. Being frugal within your startup can help you get more value for your money, reduce your overall burn rate, and as a result, prolong the life of your startup. I think of this as building the best possible “defence” around managing your survival in the wild. But, there is so much more to this than just survival. Being frugal throughout the life of your startup is also about building the best possible “offence” as well. This one trait can be the secret weapon to innovation, growth, and a positive company culture. Here’s how:

1. Being frugal helps build a culture where people appreciate instead of expect

When lavish expenditures aren’t the norm, there is a sense of appreciation around the little things. Whether it’s a team building event or a company sweatshirt, people feel good and appreciated when things come as a surprise. On the flipside, anything that you make a regular occurrence, becomes an expectation going forward. Whether that’s daily meals or an annual retreat, these can turn into expectations where employees begin forming expectations. There’s nothing wrong with that, but if the trajectory of the company changes and you need to pull back, taking things away becomes far more difficult than giving. You now have to justify your decision, and this can have a different sort of impact on the team and you personally. I’m not suggesting that everything you do for your employees needs to be sporadic and irregular, but be sure to manage expectations and make decisions accordingly.

2. Being frugal helps builds a culture that encourages saying no, in order to stay focussed

“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.” — Steve Jobs

When you start a company and it’s just the founders, there’s an endless list of things to do and so you have to prioritize. This means saying no and focusing on what matters. Now, just because you’re flush with cash, doesn’t mean you need to add more bodies immediately or pursue every interesting idea that’s proposed. In fact, premature scaling is one of the top reasons why startups fail, and you should avoid it like the plague. Staying frugal makes the job of saying no far more easier.

3. Being frugal helps build a culture that gets resourceful in order to get things done

There’s a big difference between reading about business hacks that someone else has used, versus coming up with your own. Whether that’s dealing with an aggressive competitor on a deal, or a time sensitive feature request from your biggest customer; in the face of adversity, are you confident that your team can move mountains and figure out a way to win? Being frugal is adversity training: your team learns how to prioritize, find workarounds, and use the company network to ask for help. When you don’t have an advertising budget, you come up with better messaging and content to drive conversions. When your competitors are taking your clients for steak dinners, your busy shipping feature after feature and demoing their data in production. Being frugal turns your sales people into support specialists, your developers into marketers, and you the CEO, into the pizza delivery boy. You don’t complain, you get resourceful and just do; and then you win.

4. Being frugal helps build a culture of innovation that’s rooted in creating business value

When your next meal depends on turning the last $5 in your pocket into $50, you start getting creative. It gets your brain thinking in a revenue-first-fast mindset. Can we get someone to pay for feature X before we build it? Can we test feature Y manually, before we build it? Is feature Z going to win us more customers, or is it just a nice to have? Being frugal acts as forcing function to build a product that has a clear return on investment; both for you and for your customers. This is especially important in the B2B space where most products fall into one of three buckets: a) Products that help customers make money, b) Products that help customers save money, or c) Products that help customers reduce risk.

5. Being frugal helps build a culture with a DIY mentality

Doing things yourself gives you an opportunity to learn and become an expert before you pay someone else to do it for you. Being frugal isn’t meant to increase your workload, but the reality is it probably will and that’s a good thing (at least initially). It will mean doing your own customer support, creating your own lead lists and prospect contacts, and developing your marketing plan and PR strategy. This sort of a DIY approach (especially if you don’t have previous experience in doing so), will give you the necessary domain expertise to understand the task at hand, and find the right candidate or service in the future to do it for you. While this is true for founders, it’s true for employees as well. If employees see the founders rolling up their sleeves in order to learn and expand their curiosity, they will too. A DIY mentality encourages learning and building intellectual capital within your company.

6. Being frugal helps build a culture around data driven decision making

In the B2B space, it’s common practice to have your customers ask you to prove the ROI or Internal Rate of Return of your solution before they sign off on the purchase. Startups should make decisions using a similar practice. What’s the payback period on your sales hire? What’s the ROI on the hours spent in developing feature X? Is it worth having a booth at trade show ABC? Having KISSMetrics and Mixpanel setup to track product engagement, conversions and revenue is great, but being frugal forces you to go deeper. It forces you to look at every dollar spent as an investment, which should be treated as as another datapoint when making future decisions. I’m not suggesting that all decisions be made using quantitative data alone (e.g. revenue, engagement, traffic, etc), qualitative data is important too (e.g. team dynamic, employee happiness, social/community impact etc). The point is to collect and use whatever data you have to make the initial decision, establish a criteria for measuring the effectiveness of this decision, and then look back to track it’s success or failure.

7. Being frugal helps build a culture that values the “frugal mindset,” regardless of how much cash you have in the bank

When you have no money and you’re bootstrapping, the frugal mindset comes easy because it comes out of necessity. When you’re flush with cash (through revenues, investment, other success), fostering this mindset gets infinitely more difficult. How do you tell an employee that she needs to prove value of some $10/month software subscription before moving forward? You do this by staying frugal in every aspect of the business, regardless of your bank balance. $10/month may sound small and menial for one employee, but the optics can be huge across the company. Suddenly everyone thinks that $10/month is an okay amount to spend. This “small” decision to satisfy 1 employee, can easily creep and spread across the company. The discussion shouldn’t be about the size of the expense, but about it’s effectiveness and the impact it would have to the company’s bottom line. Maintaining the frugal mindset ensures that every employee recognizes the importance of being frugal as a core benefit to the company’s long term success. It fosters a “WE” versus “ME” mentality, where everyone is constantly evaluating what’s worth the company resources (time, money, skills etc) and what’s not.

Conclusion

As the product of two Indians that immigrated to Canada in the 70s, I was raised with the mentality of maximizing the value of every dollar spent; regardless of the number of zeroes in my bank account. It’s how I manage my personal expenses at home, and the mindset I bring to my business expenses at startups as well. I take pride in being frugal. I consider it the secret weapon that enables me to focus on my values, avoid group think/herd mentality, and most of all, maintain the freedom to experiment and take bigger risks. While it’s not always popular (….ask my wife Ritu), it definitely works and we’re happier because of it (again…ask Ritu). So with holiday season upon us and Christmas around the corner, go find your inner scrooge and start developing your own secret weapon. If you have any comments or suggestions, please email me. If not, then stay hungry, stay frugal and Merry Christmas. =)

If you liked this post, please click on the ‘Recommend’ button below. Others may stumble upon my post and it will motivate me to continue writing.

You can find more posts like this published at www.rajensanghvi.com.

Also, you can follow me on Twitter @RajenSanghvi

Image Credit: Still from ‘Scrooge McDuck and Money’ — By Tom Simpson