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.
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.
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?
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.
"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.