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Ask HN: Is frugality underrated in startups?

• garmaine 6y ago
  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 6y ago
    yup true that, I have been bootstrapping so for me I found frugality very important.
  • malavwarke 6y ago
    got it thanks:), if you are VC backed then you trade money for time.
  • malavwarke 6y ago
    thanks for sharing your perspective:)
  • ryanbrunner 6y ago
    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 6y ago
      yeah
• osrec 6y ago
  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.
  • malavwarke 6y ago
    yup it also helps to build a culture or a mindset for building the startup
  • malavwarke 6y ago
    thanks for sharing your perspective:)
  • mandown2308 6y ago
    yes agreed. OP asked a very underrated question.
• ackbar03 6y ago
  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 6y ago
    yes defintely, going lean till you find PMF and then going all out after that, thanks for sharing your perspective:)
• zemvpferreira 6y ago
  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.
  • toomuchtodo 6y ago
    Great comment. Time is the ultimate non renewable resource. Optimize for its effective use ruthlessly.
  • malavwarke 6y ago
    well said, optimize according to the situation & time availability and play by your strength. Thanks for sharing your perspective:)
  • imtringued 6y ago
    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 6y ago
      yup this happens, need to balance growth, money and frugality properly. thanks for sharing.
  • troupe 6y ago
    > 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.
• jasode 6y ago
  >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_First_Production_Server.jpg https://commons.wikimedia.org/wiki/File:Google%E2%80%99s_Fir...
  • Blahah 6y ago
    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.
  • joefourier 6y ago
    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.
    • afarrell 6y ago
      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.
• fergie 6y ago
  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 6y ago
    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 6y ago
    >"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.
    • sunsetSamurai 6y ago
      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 6y ago
        It's not cheaper. However, employee compensation is a contractual obligation. Benefits and perks can be unilaterally revoked by employer at any point.
        • 6y ago
• goopthink 6y ago
  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.
  • malavwarke 6y ago
    ok got it thanks for sharing:)
  • stork19 6y ago
    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.
    • texasbigdata 6y ago
      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.
    • carlineng 6y ago
• afarrell 6y ago
  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 https://en.wikipedia.org/wiki/Streetlight_effect.
  • malavwarke 6y ago
    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.
• mindvirus 6y ago
  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 6y ago
    nice insights, thanks for sharing. Yup investing time & money properly without just considering cheapness/pricing can go a long way.
  • goldcd 6y ago
    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.
• chadash 6y ago
  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 :)
  • malavwarke 6y ago
    got it, thanks for sharing, optimize to increase revenue instead of just focusing on cutting cost.
  • maccard 6y ago
    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.
    • incrudible 6y ago
      > 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.
    • spenczar5 6y ago
      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."
• goldcd 6y ago
  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 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 6y ago
    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.
• ArtWomb 6y ago
  I read as "fragility", also an essential characteristic of seed stage ;)
  • malavwarke 6y ago
    nice touch, fragility and resilient
• mandown2308 6y ago
  Frugality is underrated even in this forum. Check out comma.ai. I think they are very frugal = smart.
• JanisL 6y ago
  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 6y ago
    hmm thoughtful
• korginator 6y ago
  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 6y ago
    right balance is all we need
• RocketSyntax 6y ago
  yes. it can take 2-3 years longer than you think to get there, so make it stretch.
• joshxyz 6y ago
  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-frugal/ https://wallstreetplayboys.com/become-a-minimalist-dont-be-f...
  • malavwarke 6y ago
    minimalism is definitely great
  • cercatrova 6y ago
    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.
• ambivalents 6y ago
  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 6y ago
    yes choosing the right thing to investment goes a long way than material or cool things
• troupe 6y ago
  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 6y ago
    yes true that if we are been frugal then we need proper plan to invest that savings and not just waste it.
• larrik 6y ago
  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).
  • onionisafruit 6y ago
    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.
  • malavwarke 6y ago
    great example, been cheap and been frugal are 2 different things
  • ValentineC 6y ago
    > 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."
• simonswords82 6y ago
  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!
• varispeed 6y ago
  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 6y ago
    If WeWork had been frugal, they might have had a future.
    • varispeed 6y ago
      Ironically I have seen some of those kind of start ups renting entire floors from WeWork ;-)
• yowlingcat 6y ago
  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.
• xyzelement 6y ago
  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 6y ago
    true that focusing on the things that matter
• tempsy 6y ago
  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.
• u678u 6y ago
  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-ben-and-jerrys-vs-amazon/ https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...
  • rileymat2 6y ago
    > 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 6y ago
      Interesting
  • malavwarke 6y ago
    speed of getting things out in the publics is very important, nice read, thanks for sharing
• nwotnagrom 6y ago
  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.
  • malavwarke 6y ago
    yup true that
• dancemethis 6y ago
  Frugality feels like it is much more related to the movement of a washing machine, so maybe the issue is the word itself.
• tmilard 6y ago
  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.
• abhaysaxena_hk 6y ago
  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 6y ago
    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 6y ago
    makes sense, disrupting an existing industry then been frugal is great and yes definitely sustaining over a period of time is the key.
• bob1029 6y ago
  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 6y ago
    amazing thought thanks for sharing
  • throw14082020 6y ago
    Except, if you can outsource your value driver, its not a value driver. Because anyone else can too.
    • bob1029 6y ago
      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.
• pembrook 6y ago
  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.
  • malavwarke 6y ago
    Absolutely true, thanks for sharing
  • lionheart 6y ago
    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.
    • malavwarke 6y ago
      frugality but not cheapness
  • free_rms 6y ago
    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.
• rahimiali 6y ago
  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.
• dhruvkar 6y ago
  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.
• p0d 6y ago
  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.
• anthony_barker 6y ago
  Frugality is always good on things the customer can't see or doesn't add value to the customer.
  • malavwarke 6y ago
    good point
• megameter 6y ago
  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.
• Abishek_Muthian 6y ago
  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.
• staysaasy 6y ago
  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.
• jfrunyon 6y ago
  Frugality is underrated in businesses. That said, not wasting too much time to save a few bucks is also underrated.
  • malavwarke 6y ago
    Absolutely true
• wenbin 6y ago
  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.
  • malavwarke 6y ago
    the balancing act
• osazuwa 6y ago
  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.
• pedalpete 6y ago
  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?
• rajacombinator 6y ago
  Unfortunately, no. Frugality is almost 100% irrelevant. The only thing that matters (at least in growth businesses) is product market fit and you can see that reflected in all of the megacorps today as well, which are extremely wasteful.
• archibaldJ 6y ago
  The other day I was being frugal and ate some But Kut Teh (pork soup) that was left in room temperature for 5 hours. And then I had stomachache and lost plenty of time. 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.
• kgin 6y ago
  People who are mad at "frugality" would be 100% on board with "not wasting money".
• _448 6y ago
  No it is not underrated. It is just that frugal entrepreneurs are frugal about their comments too :) 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).
• obayesshelton 6y ago
  You see a plethora of startups getting shiny new big offices with stocked fridges etc all whilst loss making. 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.