[HN Gopher] Ask HN: Is frugality underrated in startups?
___________________________________________________________________
Ask HN: Is frugality underrated in startups?
I feel frugality is one of the most important points for startups
and entrepreneur. I'm curious to hear more from you guys regarding
this, as what's your take on frugality and any other need/must to
have qualities to be a successful entrepreneur?
Author : malavwarke
Score : 129 points
Date : 2021-01-17 11:20 UTC (11 hours ago)
| mandown2308 wrote:
| Frugality is underrated even in this forum. Check out comma.ai. I
| think they are very frugal = smart.
| ambivalents wrote:
| This may not be exactly what you mean, but I worked for a
| successful startup that chose to cut certain costs in favor of
| others. I appreciated this practice--no excessive waste, only
| spending on what felt like mattered. My salary was above average
| for the market, with best in class health care. Those matter way
| more to me than pool tables and beer kegs.
|
| 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.
| malavwarke wrote:
| yes choosing the right thing to investment goes a long way than
| material or cool things
| JanisL wrote:
| At the moment we are living in a time with very strange monetary
| policy, in any situation where we have zero (or more absurdly
| negative) interest rates any venture that has potential to be
| profitable while growing will find that the easy funding tends to
| be valued more than frugality from the perspective of those
| providing funding. In a negative interest rate world burning
| money for time plays get a whole lot more attractive.
| malavwarke wrote:
| hmm thoughtful
| pembrook wrote:
| Rule #1 of business:
|
| 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.
| free_rms wrote:
| But you're only describing poorly executed / counterproductive
| frugality.
|
| 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.
| pembrook wrote:
| > Spending $500 of time to save 10 bucks isn't frugality,
| it's idiocy.
|
| 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.
| pushrax wrote:
| There's another useful way to look at this mathematically and
| practically: survival time. If you cut costs to nearly zero,
| you can survive nearly infinitely.
|
| 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.
| treis wrote:
| >There's another useful way to look at this mathematically
| and practically: survival time. If you cut costs to nearly
| zero, you can survive nearly infinitely.
|
| Only if you don't enjoy doing things like eating food and
| living indoors.
| [deleted]
| DiggyJohnson wrote:
| You are needlessly missing the point. GP is referring to a
| tradeoff between cost and survival time, a continuum.
|
| Obviously businesses and individuals cannot really reduce
| costs all the way to 0.
| treis wrote:
| The point is that you need to count time spent by the
| founders as an expense. Roughly somewhere between 15-20k
| per month per founder. Even if you're surviving by eating
| ramen in your parents basement there's still an
| opportunity cost from not having a job. You have to
| account for it.
| makeee wrote:
| I'd argue that most people absolutely should not account
| for it. There's enough to stress out about when trying to
| get your startup off the ground. The idea that your
| "spending" 2Ok a month due to opportunity cost is not
| helpful and probably likely to lead to burnout. On the
| other hand, saving a little money and knowing you've
| extended your runway an extra 3 months can be very
| helpful.
| bradlys wrote:
| There's another way to look at it too: a waste of time. If
| what you enjoy is lowering costs for the sake of it, living
| an extremely minimalists lifestyle, and focusing all your
| energy on finding ways to avoiding spending money then good
| for you. But for the rest of people? Probably a waste of
| time. And most individuals will never accrue the level of
| wealth necessary to live a FIRE life. After all, you can't
| actually reduce your costs to anywhere close to $0 in the US.
| Healthcare, food, shelter, and more can cost a lot. God
| forbid you want to live a somewhat normal life and have
| children who grow up with some normality.
| pushrax wrote:
| The post above is explicitly not advocating attempting to
| cut costs to $0, but to consider survival time when
| evaluating expenses. The extreme example is just useful for
| projecting an intuition of the relationship between
| spending and survival.
|
| 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.
| ignoramous wrote:
| > _...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!_
|
| 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.
| spurdoman77 wrote:
| Frugality doesnt equal stupidity. Of course a frugal person
| doesnt spend an hour trying to save $5.
|
| Being frugal and priorizing business spending and time are not
| contradictory. Frugality is about spending less while getting
| the same value.
| pembrook wrote:
| > Of course a frugal person doesnt spend an hour trying to
| save $5
|
| 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.
| ghaff wrote:
| >Of course a frugal person doesnt spend an hour trying to
| save $5.
|
| I think you may underestimate how, for many people (including
| well-off ones), getting a "deal" becomes the objective in
| itself.
| cynusx wrote:
| You clearly have never pushed a company towards profitability
| because the fundraising markets are closed to you.
|
| Generating revenue is the hard part in business, spending is
| really, REALLY easy.
| warmwaffles wrote:
| I think the crux of OP's opinion is, "it depends". If you can
| easily save a couple hundred dollars a day and are
| bootstrapped, do it. Otherwise, it may not be worth it in the
| grand scheme of things. Thus, no one size fits all, but one
| size can fit most.
| pembrook wrote:
| I'm not saying the alternative to frugality is to spend your
| way to death.
|
| 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.
| cynusx wrote:
| It takes money to build up revenue and get new clients,
| this are typically called the "customer acquisition cost"
| or CAC.
|
| 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.
| bradlys wrote:
| Curious - what startups are looking at the kind of time
| horizon for getting their customer acquisition cost back?
| That seems like an idea that investors would not want to
| pour their money into unless it's an incredibly sticky
| market... in which case, why would they switch to you and
| not a competitor shortly after you paid for their
| business...?
| StanLindsey wrote:
| Spacex and Tesla come to mind.
| pembrook wrote:
| I think we're saying the same thing.
|
| 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.
| TheOtherHobbes wrote:
| It's the "proven business" part that will kill you.
| jbay808 wrote:
| > You can generate revenue to infinity, but you can only cut
| costs to zero.
|
| You can also increase costs to infinity. Frugality doesn't have
| to be about cutting down on costs that already exist.
| golemiprague wrote:
| It is not always revenue vs. cost, there is also a time factor.
| Being frugal might help staying longer in business, it doesn't
| matter what the competition are doing, not everything is a zero
| sum game and sometimes success come because of some event and
| if you are there to capitalise it you might succeed, like what
| happening these days with messaging and twitter like apps. So
| it is all a matter of balance and there is no one way to do
| those things.
| Riverheart wrote:
| Partial disagree. Pay for good people to make the most out of
| the tools available. If there is something you need that would
| improve revenue then get it when it becomes clear but don't
| just buy top tier X because. Start-ups need as much runway as
| possible if things dip until the business model is sustainable.
|
| 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.
| JohnHaugeland wrote:
| > You can generate revenue to infinity, but
|
| 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.
| throwawayboise wrote:
| Worked for a company like this in the first dot-com boom. VC
| funded. Spending money like mad. Lavish offices. Big sales
| staff. Top-of-the-line Sun servers and Cisco networking gear.
| It was all focused on being ready to scale. Never had _one_
| paying customer. When the last funding round didn 't
| materialize, the burn rate killed them in a matter of weeks.
| malavwarke wrote:
| Absolutely true, thanks for sharing
| throwaway78123 wrote:
| This, 100% agree.
|
| 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.
| seg_lol wrote:
| Yeah the key to having the penny pinching DIY approach pay
| off is to have your time already close to zero. Then you can
| take as long as you want to perfect your CI/CD pipeline and
| loading screens, they will all pay for themselves in the end.
| OJFord wrote:
| > 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!
|
| 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.
| StanLindsey wrote:
| I'd argue if you don't have the work the time would be better
| spent getting the best client than saving three dollars.
| blueflame7 wrote:
| "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" - How if they are wasting their money as where you
| are saving? Wouldn't it give you more resources to go after
| their customers?
| lionheart wrote:
| I feel like this is the popular sentiment these days but I
| don't fully agree.
|
| 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.
| bob1029 wrote:
| I would say frugality is very underrated. It's also not just
| about saving money. Reducing complexity in your operations
| (saving time) is arguably more important. Every purchasing
| decision we make at our 7-person company usually passes through
| me at some level, and the first question I always ask (in my
| head) is:
|
| "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.
| malavwarke wrote:
| amazing thought thanks for sharing
| throw14082020 wrote:
| Except, if you can outsource your value driver, its not a value
| driver. Because anyone else can too.
| bob1029 wrote:
| That is an excellent observation to make. If you are planning
| to start a business and come to the realization that you
| could outsource your principal value driver, then you
| probably should not go into business doing that thing.
| cercatrova wrote:
| What kinds of value drivers exist? Are there any examples
| of outsourcing value drivers, either potentially or
| actually? I'm not quite understanding the statement.
|
| 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?
| throw14082020 wrote:
| I would say that some (not all) digital agencies add
| value not by coding a website up but by providing their
| service, for example:
|
| - 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.
| nwotnagrom wrote:
| I guess its just a matter of balance at the end of the day and
| finding what makes sense for your business (which is why some
| make it and some don't!). Its like investing. You could be
| conservative and sometimes that rewards you, but at the same
| time, you will most likely not take the risks that could return
| big reward.
| fergie wrote:
| Overrated. When you are running a business you have to consider
| income, labour and employee retention. Businesses generally spend
| "extra" money in order to save labour or generate income. That
| skiing trip to the Alps that you organised for your workers last
| year? That saved you 10 times as much in recruiting, on-boarding
| and pay rises. That really expensive enterprise SAAS that you
| bought? Its boring, but it freed up time for your sales people to
| generate 3 times more business. etc.
| malavwarke wrote:
| yup true that instead of just been frugal everywhere try to
| optimize for the overall growth even if the effects of it might
| be indirect or may be seen in the near future. Thanks for
| sharing your perspective:)
| FpUser wrote:
| >"That skiing trip to the Alps that you organised for your
| workers last year..."
|
| 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.
| xyzelement wrote:
| You are not weird but you are missing the point of why
| companies do it.
|
| 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.
| Kudos wrote:
| Exactly, the pool table itself doesn't help with retention
| nearly as much as the relationships people build while
| using it does.
| sunsetSamurai wrote:
| You and everybody else is thinking that, but management knows
| that it's' cheaper to offer all these perks than give
| everybody a nice raise.
| throwaway-8c93 wrote:
| It's not cheaper. However, employee compensation is a
| contractual obligation. Benefits and perks can be
| unilaterally revoked by employer at any point.
| malavwarke wrote:
| haha can relate to that
| paradox242 wrote:
| Yes, I do not like employer-mandated "fun". I'm a fucking
| weirdo and I'll have fun on my own terms, thanks.
| malavwarke wrote:
| it is more of team building & family time means the
| employee and company in itself is a family and that makes
| the difference for the outings for employees, trusted
| vision-driven folks out relaxing and enjoying in between
| the work. This definitely has a great impact on team
| morale.
| JabavuAdams wrote:
| Your family can't fire you.
| xyzelement wrote:
| What a crappy attitude that leads nowhere:)
|
| 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."
| smolder wrote:
| Sometimes people do not enjoy things that are safe bets
| for others. They are not wrong for having those
| preferences, and shouldn't need an adjustment. Conformity
| is not a virtue, IMO, and it's not productive to get hung
| up on it. Networking and developing a rapport with people
| can be done lots of ways. Everyone can afford to cut the
| "weirdos" some slack in how they approach it, just as the
| inverse is true.
| xyzelement wrote:
| >> Conformity is not a virtue,
|
| 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.
| smolder wrote:
| Thanks for your replies! I think you helped clarify your
| position. It's food for thought.
| xyzelement wrote:
| Yeah it's funny - sometimes it takes someone
| reacting/challenging me to pause me so I can figure out
| how to articulate it in a way that makes my intention and
| logic more clear.
| ftoscano wrote:
| > What a crappy attitude that leads nowhere:)
|
| 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.
| xyzelement wrote:
| >> Erm, so we're mandating what people should do now?
|
| 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 naive 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?
| smolder wrote:
| I don't mean to insult but I think your view is pretty
| naive in its own way. You see the rapport built from
| going to the bar as an advantage that you shouldn't pass
| up on. In your example where failing to go to the bar
| makes you less impactful at work, I see a team that is
| doing a shitty job at team building, which will probably
| harm their chances of success. The blame for that can go
| in any and all directions, it's on everyone.
|
| 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.
| xyzelement wrote:
| Smolder, I don't mean it as black and white as it sounds.
| Here's an analogy:
|
| 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?
| fakedang wrote:
| What inevitably happens with your approach is that people
| will soon gradually feel forced into taking part in bar
| meetings, else their "rapport" would be affected, which
| would have further detrimental effects down their career
| at that place. Hence people get herded into team building
| exercises for the group against their will, even though
| they might have zero interest or capability in such
| exercises. This leads to the cargoculting mentioned in
| the previous comment.
|
| 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.
| andrewingram wrote:
| At my last job, we had a 2 day off-site on an island that
| in all honesty was a lot of fun.
|
| 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).
| xyzelement wrote:
| Sincere question - now that you had been through that
| month of anxiety and then enjoyed the event, would you
| have the same amount of anxiety next time around or does
| the repeat experience help it abate?
|
| 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?
| andrewingram wrote:
| The problem is that these kinds of events are too
| infrequent to allow for any momentum in my psychological
| state.
| korginator wrote:
| Balance is more important than frugality. Know where to spend and
| where to cut costs. I've been in more than a few small companies
| that took penny-pinching to extremes.
|
| 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.
| malavwarke wrote:
| right balance is all we need
| ArtWomb wrote:
| I read as "fragility", also an essential characteristic of seed
| stage ;)
| osazuwa wrote:
| The main distinction in investment. If you take investment,
| especially VC investment, no one gives a f*ck about cost savings.
| Your job is to provide an exit to investors are soon as possible,
| and you do that by growing market share.
|
| 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.
| rahimiali wrote:
| The version of frugality that makes sense to me is: mind the ROI
| on your expenditures. Pay for the fancier equipment if it pays
| for itself faster somehow. hire the expensive engineers if they
| speed you up and that speed pays for itself. Buy equipment on
| ebay if the delays in returning defective equipment doesn't cost
| you more than you're saving.
|
| Different people mean different things by "frugality", but "save
| money at all cost" doesn't make sense as an implementation.
| goopthink wrote:
| It really depends on how your business is financed and on your
| access to capital.
|
| 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.
| stork19 wrote:
| Equity is actually the most expensive form of capital (measured
| by an investor's required return on capital). If a startup
| could raise debt financing, that would no doubt be preferable.
| However that's quasi-impossible with no revenue. I do agree
| with the other parts of this answer though.
| carlineng wrote:
| Minimum rate of return is only one measure of cost. If we
| look at cash flows, the story is much different. Startups are
| usually cash-constrained, and equity financing is a way to
| raise cash without negatively impacting future prospects.
| Debt financing causes a drag on a company's cash flows and
| reduces flexibility, since now the company must divert a
| portion of its cash flow to interest payments. For a young
| company with low revenues and no profits, and thus unable to
| make tax deductions on interest, debt financing is actually a
| highly unattractive proposition.
| texasbigdata wrote:
| Not true. If a startup could access debt but future
| uncertainty about its cash flows (say between series A and
| Series B) combined with the cash pay requirements for such
| cash flow (likely 18%) make the debt vs equity calculation
| not as straight forward as it seems.
| malavwarke wrote:
| ok got it thanks for sharing:)
| yowlingcat wrote:
| > That said, if you're a regular entrepreneur or business
| owner, the script is flipped.
|
| 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.
| computerlab wrote:
| And the ability to cost-effectively signal to customers that
| your execution is better.
| ufmace wrote:
| Somebody bigger than you stomping on your toes is always a
| possibility. This is somewhat mitigated by the fact that VCs
| are looking for super huge 1000x growth possibilities. If
| your market will only bear a modest level of growth and
| possibility, most likely nobody will be interested in
| investing millions to squash you.
| megameter wrote:
| The need for frugality depends on where the underlying leverage
| of the business comes from. If your leverage involves a large
| capital pool - maybe you need equipment or facilities - you're
| gonna have to spend. And if you intend to recruit and keep top
| talent in the field, your spending has to bias towards keeping
| them happy. In those senses, you can't afford to be frugal.
|
| 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.
| dancemethis wrote:
| Frugality feels like it is much more related to the movement of a
| washing machine, so maybe the issue is the word itself.
| staysaasy wrote:
| In my opinion / experience there are two areas of frugality that
| are important to focus on for the types of high-growth venture-
| backed companies that are common topics on HN.
|
| 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.
| pedalpete wrote:
| Rather than looking at costs as frugal vs expensive, I'm trying
| to look at costs as a subtractor or multiplier.
|
| 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?
| jfrunyon wrote:
| Frugality is underrated in _businesses_.
|
| That said, not wasting too much time to save a few bucks is also
| underrated.
| afarrell wrote:
| If you think that someone else is wasting money, there are two
| possibilities:
|
| 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.
| malavwarke wrote:
| yup true that accountability of money/cost has to be there but
| just been frugal at all cost doesn't work and can be disastrous
| in turn. Thanks for sharing.
| troupe wrote:
| Being frugal is only half of the equation. It depends what you do
| with the money you save. Are they being frugal to make targeted
| investments in the things that have a good pay off or are they
| frugal in ways that prevents them from even taking advantage of
| opportunities.
|
| 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.
| malavwarke wrote:
| yes true that if we are been frugal then we need proper plan to
| invest that savings and not just waste it.
| mindvirus wrote:
| I think it's a bad thing for the lower ranks and a really good
| thing for leadership.
|
| 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.
| malavwarke wrote:
| nice insights, thanks for sharing. Yup investing time & money
| properly without just considering cheapness/pricing can go a
| long way.
| goldcd wrote:
| Just to follow on from that - I think the thing that irritates
| is 'cheapness' rather than lack of overt generosity.
|
| 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.
| malavwarke wrote:
| well said frugality shouldn't be for cheapness. Thanks for
| sharing.
| mindvirus wrote:
| Most important is how you stop frugality from becoming
| cheapness. If one of your values is frugality, you have to
| figure how people are evaluated on it. The big risk I see
| is it becomes about spending the least money, not spending
| money with the best long term return.
| walshemj wrote:
| One of the factors I feel in the collapse or Marconi was
| the obsessive penywise pound foolish attitude of its CEO.
| ghaff wrote:
| >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.
| varispeed wrote:
| I've seen so many startups, first thing they do once they get
| that VC money, they move to a flashy new office, add top of the
| line coffee machines, craft beer on tap, fridges and catering,
| hire masseuse, team building coach, lease some supercars or
| executive cars, get some graphics designers, spend days on photo
| shoots praising their future product, take teams to fancy
| restaurants, find and fly business class to every possible
| conference in the tropics, meanwhile developer salaries stay the
| same or get cut, as company is in a "growth stage". Then people
| who did the most work and feel most exploited leave, they get
| replaced by young and energetic Udemy / boot camp taught
| developers and once the money gets close to run out, they get on
| a crunch to convince investors to pour even more money, whilst
| the board is thinking where to build their next house.
| kbelder wrote:
| If WeWork had been frugal, they might have had a future.
| varispeed wrote:
| Ironically I have seen some of those kind of start ups
| renting entire floors from WeWork ;-)
| tmilard wrote:
| 1) Client is king : - On my domain ( 3D edit), I have seen
| countless startups with good financing come. They all died, not
| because of financing (be it too much or too little) but because
| all has a technology no client really wanted.
|
| 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.
| wenbin wrote:
| It depends.
|
| 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.
| yowlingcat wrote:
| I've observed that frugality is one of the least important values
| for startups and for founders. The vocation of an founder is to
| find product market fit and grow revenue. Frugality can be a
| useful tool for growing revenue. But without product market fit,
| it's a premature optimization, and a seductive one.
|
| 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.
| dhruvkar wrote:
| It depends based on the type of business you're in.
|
| 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.
| chadash wrote:
| A piece of advice I once got from an old boss and very successful
| entrepreneur was to focus on increasing revenue, not on
| decreasing costs. I said don't both ways increase profits? He
| responded that your costs could only go down 1x but your revenue
| can go up almost infinitely.
|
| 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 :)
| breck wrote:
| > costs could only go down 1x but your revenue can go up almost
| infinitely.
|
| 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.
| yowlingcat wrote:
| > 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
|
| 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.
| breck wrote:
| Yes, you are right.
|
| 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.
| maccard wrote:
| It really depends on the costs. If your cost scales with your
| users/usage, then reducing those costs is even more worthwhile.
| A 20% decrease in cost is 20% more revenue now and forever. And
| many of those reductions are easier to make now than when
| you're fully scaled up.
| spenczar5 wrote:
| That's a good point, but generally "frugality" doesn't refer
| to _unit_ costs, which are the thing you 're describing. It
| usually points to things like "buy laptops on craigslist
| instead of new."
| maccard wrote:
| I don't think that's necessarily true. There are plenty of
| cases where frugality would be reasonable with unit costs.
| A team running a k8s cluster on eks with redundancy while
| they're working on an MVP is likely spending 5x what they
| need compared to running a single fargate container/DO
| droplet. I would definitely consider the reverse of that
| being "frugal".
|
| 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.
| spenczar5 wrote:
| Sure, there are definitely cases where you can be frugal
| on unit costs. I think your examples are not very good
| ones, though.
|
| 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.
| chadash wrote:
| For unit costs, sure. Some HFT funds are relentless in
| shaving fractions of cents off of their costs. I'm not sure I
| would call them _frugal_ though. When I hear frugality I
| think more in terms of buying used furniture or decreasing
| travel budgets. Might be wise, but probably shouldn't be the
| focus over increasing revenue for most companies.
| incrudible wrote:
| > A 20% decrease in cost is 20% more revenue now and forever.
|
| 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_.
| troupe wrote:
| On the other hand, spending money on things that have no link
| to profitability may shorten your runway and running out of
| money can put a crimp in your ability to generate profit.
| Amazon's homemade desks are an example of this. Amazon is very
| willing to spend huge amounts of money on thing that have a
| chance of increasing profit, but frugal in areas that can't be
| tied to long term profit.
| malavwarke wrote:
| got it, thanks for sharing, optimize to increase revenue
| instead of just focusing on cutting cost.
| osrec wrote:
| I personally think frugality is always important, regardless of
| whether you're well funded or not. It helps set the tone for your
| company as one that wishes to avoid frivolousness, which helps
| you and your people make good decisions, in addition to
| preventing you burning through cash too quickly.
| mandown2308 wrote:
| yes agreed. OP asked a very underrated question.
| malavwarke wrote:
| yup it also helps to build a culture or a mindset for building
| the startup
| malavwarke wrote:
| thanks for sharing your perspective:)
| ackbar03 wrote:
| I believe yc has always encouraged startups to be frugal until
| they find product market fit, at which point then it starts to
| make sense to spend money to fund growth, whether it comes from
| vc or nkt
| malavwarke wrote:
| yes defintely, going lean till you find PMF and then going all
| out after that, thanks for sharing your perspective:)
| p0d wrote:
| I was on an accelerator last year and am frugal. I don't think
| being frugal helps in the startup space. It may signify you are
| risk adverse.
|
| 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.
| xyzelement wrote:
| This is a funny question.
|
| 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.
| malavwarke wrote:
| true that focusing on the things that matter
| goldcd wrote:
| I'd always looked at it as there being '2 strands' within the
| company. There's the main one, where you "make the money" - this
| (obviously) has to be profitable at all costs. Then there's the
| other than intertwines around this to serve the first indirectly
| - and you can be more flexible here. e.g. Revenue from google's
| adwords has to support the cost of their infrastructure and free
| services - if that's ticking along well, you can have the nice
| buildings, free chef meals etc. This can be turned up and down
| depending on the market.
|
| 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.
| malavwarke wrote:
| thanks for sharing your insights. true that, it can go in both
| ways, there has to be some sort of frugality at the core and
| also not to be overly obsessed with it.
| larrik wrote:
| I think spending smartly is more important than simply being
| frugal.
|
| 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).
| malavwarke wrote:
| great example, been cheap and been frugal are 2 different
| things
| onionisafruit wrote:
| What you describe is a perfect example of what I think of as
| frugal vs cheap. The cheap person goes for the lowest immediate
| cost. The frugal person goes for the lowest long term cost.
| ValentineC wrote:
| > _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._
|
| 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."_
| tempsy wrote:
| No it's not. You'll miss the forest for the trees if you waste a
| second wondering if you should cut back on office snacks instead
| of how to grow your business.
|
| Money is extremely cheap and easy right now.
| anthony_barker wrote:
| Frugality is always good on things the customer can't see or
| doesn't add value to the customer.
| Abishek_Muthian wrote:
| Replace 'frugality' with 'capital efficiency', 'cost-benefit
| analysis' in your search and you'll find positive articles from
| big names often claiming they're underrated or even only thing
| that matters.
|
| Startup ecosystem just likes to create their own terminologies
| for things which we know is good for business and done all long.
| garmaine wrote:
| If you are bootstrapping, certainly.
|
| 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.
| malavwarke wrote:
| yup true that, I have been bootstrapping so for me I found
| frugality very important.
| malavwarke wrote:
| got it thanks:), if you are VC backed then you trade money for
| time.
| malavwarke wrote:
| thanks for sharing your perspective:)
| ryanbrunner wrote:
| While this is true, I think that it's vitally important to be
| careful not to lose what earned you early success as you scale.
|
| 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.
| harsh778 wrote:
| yeah
| zemvpferreira wrote:
| If anything I'd say it's overrated. For all the hype, how many
| Lean Startup success stories do we have vs. VC-backed, burn-
| money-for-time plays? How many IPOs in the past 10 years have
| come from turning old doors into desks instead of going to
| Costco?
|
| 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.
| malavwarke wrote:
| well said, optimize according to the situation & time
| availability and play by your strength. Thanks for sharing your
| perspective:)
| imtringued wrote:
| A lot of those VC backed companies had a pretty good chance of
| growing into mildly profitable companies but they were
| overfunded and forced to grow faster than their market could
| support. In the end they wasted 100% of the money.
| malavwarke wrote:
| yup this happens, need to balance growth, money and frugality
| properly. thanks for sharing.
| troupe wrote:
| > How many IPOs in the past 10 years have come from turning old
| doors into desks instead of going to Costco?
|
| 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.
| toomuchtodo wrote:
| Great comment. Time is the ultimate non renewable resource.
| Optimize for its effective use ruthlessly.
| RocketSyntax wrote:
| yes. it can take 2-3 years longer than you think to get there, so
| make it stretch.
| u678u wrote:
| Joel Spolsky wrote a classic blog piece on this 20 years ago. If
| you're in a new market trying to grab leadership, frugality is
| not important, speed is. If you're in a competitive market
| keeping costs low is very important.
| https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...
| rileymat2 wrote:
| > Another extremely strong network effect is proprietary chat
| systems like ICQ or AOL Instant Messenger. If you want to chat
| with people, you have to go where they are, and ICQ and AOL
| have the most people by far. Chances are, your friends are
| using one of those services, not one of the smaller ones like
| MSN Instant Messenger. With all of Microsoft's muscle, money,
| and marketing skill, they are just not going to be able to
| break into auctions or instant messaging, because the network
| effects there are so strong.
|
| 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?
| malavwarke wrote:
| Interesting
| malavwarke wrote:
| speed of getting things out in the publics is very important,
| nice read, thanks for sharing
| simonswords82 wrote:
| Depends on the finance and growth strategy being employed.
|
| 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!
| jasode wrote:
| _> I feel frugality is one of the most important points for
| startups and entrepreneur._
|
| 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...
| Blahah wrote:
| Yup, it's far too easy to hemorrhage money on cloud/hardware
| without actually achieving anything, and it's similarly easy to
| undervalue employee satisfaction, motivation, and loyalty.
| akhilcacharya wrote:
| > least amount of money for computer parts
|
| 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.
| joefourier wrote:
| Here's what I don't get. Being frugal with AWS costs seems to
| be another contradiction, like having a Michelin starred chef
| cook for your employees every day yet penny pinching the cost
| of the ingredients...
|
| 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.
| raverbashing wrote:
| Yeah, agreed. Especially when they try to "save costs" by
| spreading itself over several AWS services ensured they're
| locked in the most to the ecosystem.
|
| 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.
| throwawayboise wrote:
| Having the chef prepare a great meal allowed them to have
| people working 12 hour days instead of 8, and saved them the
| cost of hiring more staff. It probably was worth it.
|
| Frugality =/= cheap. Frugality is about spending wisely;
| getting good value.
| afarrell wrote:
| Penny-pinching the cost of the ingredients makes sense if and
| only if you don't value the impact or you want to pay a team
| which has "maintaining food supplier relationships" as 1 out
| of 3 ongoing focus areas. If there is a team with that
| ongoing mission, it can build the skills needed to reduce the
| cost of inputs without reducing the quality of impact.
|
| 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.
| malavwarke wrote:
| great insights, instead of going all out on frugality, it can
| be strategically optimized in various departments depending
| upon the overall impact. Thanks for sharing your perspective:)
| shalmanese wrote:
| Have a good sense of what the O(1), O(logN) and O(N) costs of
| your business are. O(1) costs are stuff like incorporation and
| legal compliance, O(logN) costs are stuff like the product team
| and O(N) costs are stuff like server costs and customer service
| staff.
| cmenge wrote:
| +1. I think it is the same on spending and income: you must
| understand what scales with what. The number of coffee machines
| scales with the number of employees (and office layout), but
| the cloud service spend depends on many factors. If nobody ever
| was asked to keep an eye on that, it can run away quickly and
| it will be hard to regain control. I've seen people routinely
| reserve entire vCPUs in Kubernetes for tiny test systems,
| instead of 150m which would have easily sufficed.
| adamnemecek wrote:
| > make desks out of doors
|
| This is such a stupid idea. At some point it would make sense
| to start making your own optimally designed desks.
| fakedang wrote:
| It's pretty easy to make desks out of doors. Especially if
| you don't need drawer or rackspace. I read somewhere that
| they got the doors as salvage from a waste disposal firm.
| Putting a few screws here and there would have sufficed. Not
| to mention door-length desks would be really spacious, for
| leg space and desk space.
| akhilcacharya wrote:
| We all use automatic standing desks now, fwiw. Allegedly for
| period the door-style desks were actually more expensive than
| normal desks but they were kept as a "cultural statement".
| Don't know how true that is.
| jonfromsf wrote:
| This was corporate myth-making. They did it to drive home the
| point that Amazon was a scrappy place. Obviously it wasn't a
| logical decision from a pure cost basis. But from a story-
| telling perspective it was a heckin' home run.
| joshxyz wrote:
| I think frugality is absurd, and minimalism is what you wanna be
| aiming for where you are highly sensitive to the ROI of your each
| and every spend.
|
| 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...
| cercatrova wrote:
| I think frugality is what you define as the word cheapness, ie
| the difference between frugality and cheapness is the latter is
| about spending money in a useful way versus not spending money
| at all.
| malavwarke wrote:
| minimalism is definitely great
| abhaysaxena_hk wrote:
| Lots of great discussion here already. My own perspective is that
| it depends on both your goals and your source of funding. If your
| goal is to disrupt an existing industry, or create something
| brand new then speed is more important than frugality. If you are
| trying to create a business that solves existing problems but in
| a cheaper / better way (and nothing wrong with that) then
| frugality is more important as staying power is crucial.
|
| 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 :)
| kamroot wrote:
| This makes sense. When I was reading the history of Intel vs
| Motorola it seemed like Motorola had better chip architecture
| but Intel won the market and then of course pivoted from there.
|
| Current state of intel is an entirely different matter.
| malavwarke wrote:
| makes sense, disrupting an existing industry then been frugal
| is great and yes definitely sustaining over a period of time is
| the key.
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