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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

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."
- maccard 6y ago
  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 6y ago
    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 6y ago
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 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."

maccard 6y ago
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 6y ago
  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 6y ago

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.