4 ms·

Maybe this is because excessive spending is caused by not thinking carefully and precisely about all the factors relevant to the startup, whereas frugality come

by xlnt 18y ago

Maybe this is because excessive spending is caused by not thinking carefully and precisely about all the factors relevant to the startup, whereas frugality comes from trying to maximize everything to one's benefit. So even if the actual money savings doesn't make a huge difference, it's a visible indicator of doing the right kinds of things.

pg 18y ago
That is definitely a large part of it. When Greg Mcadoo from Sequoia spoke at YC this winter, he said he'd also noticed that frugal startups did better. When I asked him why, he said probably because frugality was an instance of focus, and that focus is the key to success in a startup. Overspending = spending on inessential things, which in turn implies you don't understand what's essential. For the same reason, it's bad when founders can't explain what they're doing concisely.
manmanic 18y ago
I've think there are a couple of hidden factors which help explain the correlation between frugality and startup success - economic intuition, and the sense of entitlement. Many startup founders don't have good economic intuition, and this expresses itself both in a lack of frugality, and an inability to come up with a realistic business model. In other words, similar skills and experience are needed to answer both these questions: 1. How long do we need our investment money to last, and what is the best way of spending it over that time? 2. What kind of products will people will pay for, and how much will they be willing to pay? So you'll often see a startup which is spending money unnecessarily, and also finding it impossible to bring enough in. On the second point, some startup founders have a sense of 'entitlement'. By this I mean a belief that the world owes them a good life without them having to earn it. Perhaps this is because investment is too easy to come by in the current environment. Instead of feeling a heavy sense of responsibility and guardianship over their investors' money, and focusing on providing a return, these founders think they've been given a free ticket to go pursue their dreams. This will express itself both in a lack of frugality regarding money, and also an unwillingness to put in the long hours necessary to make their startup succeed.

by xlnt 18y ago

pg 18y ago

That is definitely a large part of it. When Greg Mcadoo from Sequoia spoke at YC this winter, he said he'd also noticed that frugal startups did better. When I asked him why, he said probably because frugality was an instance of focus, and that focus is the key to success in a startup. Overspending = spending on inessential things, which in turn implies you don't understand what's essential. For the same reason, it's bad when founders can't explain what they're doing concisely.

manmanic 18y ago

I've think there are a couple of hidden factors which help explain the correlation between frugality and startup success - economic intuition, and the sense of entitlement. Many startup founders don't have good economic intuition, and this expresses itself both in a lack of frugality, and an inability to come up with a realistic business model. In other words, similar skills and experience are needed to answer both these questions: 1. How long do we need our investment money to last, and what is the best way of spending it over that time? 2. What kind of products will people will pay for, and how much will they be willing to pay? So you'll often see a startup which is spending money unnecessarily, and also finding it impossible to bring enough in. On the second point, some startup founders have a sense of 'entitlement'. By this I mean a belief that the world owes them a good life without them having to earn it. Perhaps this is because investment is too easy to come by in the current environment. Instead of feeling a heavy sense of responsibility and guardianship over their investors' money, and focusing on providing a return, these founders think they've been given a free ticket to go pursue their dreams. This will express itself both in a lack of frugality regarding money, and also an unwillingness to put in the long hours necessary to make their startup succeed.