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Ask PG: Correlation between frugality and startup success?

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Re: Ask PG: Correlation between frugality and startup success?

#11

Post by Tamerlin »

SwellJoe wrote: post #9
johns wrote: post #6

Earlier quoted context omitted.

Any thoughts on why this is? My first thought is those that are frugal understand the long-term consequences of their decisions, understand the fragility of their position and are otherwise more measured decision makers. All qualities which I think translate well to running a successful business.

Frugality is just a basic life skill. It serves you well in anything. However, I'm beginning to notice now that our customer base has grown and our revenues have doubled a couple of times over since our time in YC that what used to seem extravagant (paying people to do things for us) is now becoming the smartest way to make problems go away. I just paid Google $500 yesterday to handle search on our site, because it i…

That's a very good example of what frugality is. A lot of people seem to equate "frugal" and "cheap" which is wrong; fragality is only spending money when you need to. Or in your case, you determined that the cost of spending $500 for a Google custom search was worth less money than the time you yourself were putting into doing it yourself.

Re: Ask PG: Correlation between frugality and startup success?

#12

Post by fallentimes »

webwright wrote: post #3

Yeah, they didn't once ask us where we spent the money. I think the assumption is "food, rent and hosting".

How does this work come tax time? From my understanding, you can only write off hosting, half of food (sometimes) and maybe a part of rent. How did you guys deal with this?

Re: Ask PG: Correlation between frugality and startup success?

#13

Post by pg »

xlnt wrote: post #8
pg wrote: post #5

Good question. There is a huge correlation. People who are cheap are much more likely to succeed. And not just because their money lasts longer; a frugal attitude seems to correlate with success.

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.

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.

Re: Ask PG: Correlation between frugality and startup success?

#14

Post by gustaf »

pg wrote: post #5

Good question. There is a huge correlation. People who are cheap are much more likely to succeed. And not just because their money lasts longer; a frugal attitude seems to correlate with success.

I that the more money you have the more you think about how to spend them. If you don't have a lot of money you don't have these options.

It takes a lot of discipline to raise a lot of money but still keep the same amount of speed/focus as you did before you raised the money.

Re: Ask PG: Correlation between frugality and startup success?

#15

Post by SwellJoe »

fallentimes wrote: post #12
webwright wrote: post #3

Yeah, they didn't once ask us where we spent the money. I think the assumption is "food, rent and hosting".

How does this work come tax time? From my understanding, you can only write off hosting, half of food (sometimes) and maybe a part of rent. How did you guys deal with this?

I don't know that we're representative, but, so far, I mostly just wave my hands around and go, "This sucks." And then leave it for later (meaning we haven't been doing much with write-offs or expenses on our tax filings). Pretty much all of my bookkeeping to date has been of the form "put it in a folder for when we hire a bookkeeper". Luckily, this will be the year in which we hire a bookkeeper, and I won't have to think about it too much any more, and I most likely won't end up in jail for not reporting things correctly or on time (fingers crossed).

Re: Ask PG: Correlation between frugality and startup success?

#16

Post by foodawg »

pg wrote: post #5

Good question. There is a huge correlation. People who are cheap are much more likely to succeed. And not just because their money lasts longer; a frugal attitude seems to correlate with success.

I definitely agree that a frugal attitude is essential for success. But I'm reminded of a great article on "I Will Teach You To Be Rich" called Cheap vs. Frugal.

http://www.iwillteachyoutoberich.com/blog/cheap-versus-fruga...

Being cheap means spending as little money as possible often ignoring quality and efficiency. Now frugal, might not necessarily be the cheapest but it is the best value.

From the article above:

"Cheap people think short term. Frugal people think long term."

Re: Ask PG: Correlation between frugality and startup success?

#17

Post by blogimus »

SwellJoe wrote: post #9
johns wrote: post #6

Earlier quoted context omitted.

Any thoughts on why this is? My first thought is those that are frugal understand the long-term consequences of their decisions, understand the fragility of their position and are otherwise more measured decision makers. All qualities which I think translate well to running a successful business.

Frugality is just a basic life skill. It serves you well in anything. However, I'm beginning to notice now that our customer base has grown and our revenues have doubled a couple of times over since our time in YC that what used to seem extravagant (paying people to do things for us) is now becoming the smartest way to make problems go away. I just paid Google $500 yesterday to handle search on our site, because it i…

Supporting your comment, I've heard the phrase "many people spend a lot of time to save a little money and some people spend a lot of money to save a little time."

How many lawyers/doctors/executives do you know who do handyman work? It is just so much more cost effective to pay someone to fix this or change the oil so that the person can get another billable hour or another patient or another business deal or address client/customer needs? So I won't quite call it frugality, but more efficiency. The question becomes "are you efficient with your money and time?"

Re: Ask PG: Correlation between frugality and startup success?

#19

Post by Tamerlin »

blogimus wrote: post #17
SwellJoe wrote: post #9

Earlier quoted context omitted.

Frugality is just a basic life skill. It serves you well in anything. However, I'm beginning to notice now that our customer base has grown and our revenues have doubled a couple of times over since our time in YC that what used to seem extravagant (paying people to do things for us) is now becoming the smartest way to make problems go away. I just paid Google $500 yesterday to handle search on our site, because it i…

Supporting your comment, I've heard the phrase "many people spend a lot of time to save a little money and some people spend a lot of money to save a little time." How many lawyers/doctors/executives do you know who do handyman work? It is just so much more cost effective to pay someone to fix this or change the oil so that the person can get another billable hour or another patient or another business deal or addres…

That's also a good point. I think there's a disconnect there in a lot of cases, several of them being former employers of mine.

I think the ones who stray from "frugal" to "cheap" are failing to consider the value of what they're spending their money on, and rather focussing on the number of dollars that are leaving their account.

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