What kind of car do you drive? Cell phone do you use? What brand of watch do you wear? What home do you live in? Have you outfitted it with luxury furniture and plasma screen TVs? Or did you furnish it with some IKEA essentials on a bargain budget? And where do you work? Play?
It’s no secret that entrepreneurs manage a ton of tensions. Some of those are non-financial, like the balance we must strike between work and family. Others, like fundamental decisions about how to spend our hard-earned money, naturally are.
For many of us the tendency is to maximize what we can afford. “Why should I buy a used Civic with 80,000 miles,” we reason, “when I can afford the new model?” We apply similar logic when buying cell phones and watches and new home.
But there’s a problem: Maximizing what we can reasonably afford often doesn’t translate to the best use of our money.
That’s because an S Class Mercedes-Benz can’t make sales. Because a Rolex watch won’t help us to decide which new markets to pursue. Because an over-the-top wardrobe from a high-profile designer can’t make our companies more operationally fit.
I mean that we’re constantly managing tensions between fundamental questions of form and function. Between how we interpret our needs, and the way we expect our solutions to those needs to perform. And this tension applies equally to the way we spend money in our businesses.
Writes Guy Kawasaki, former Chief Evangelist at Apple and founder of Garage.com, “When spending money, always focus on the function you need, not the form it takes. For example, proper accounting does not mean retaining a big-name firm (form) and then assuming the job will get done (function).”
I had the opportunity to learn a valuable lesson in “form versus function” not long ago when I traveled to the offices of a local robotics firm. The company is located in a run-down part of town. So run-down, in fact, that I was unsettled as I walked to its front door.
When I arrived I was instructed to wait in a cramped area where I tried to sip from a water fountain that didn’t work. When the Director of Sales and Estimation came to greet me, he brought me to a cluttered room. As I sat down, I noticed that the furniture looked like a collection of items from employees’ homes. The stuffing was falling from chair.
From my description you may think the company is in shambles. It isn’t. In fact, it’s one of the fastest-growing robotics firms in Pittsburgh.
I point to their example here because it illustrates what happens when we begin thinking critically about form and function. Because the robotics firm values function, it has saved cash to reinvest in its growth. That means more resources to invest in finding and growing profitable customers. And more cash on the bottom line.
I admit that this isn’t easy – that it takes a great amount of restraint to forfeit an affordable expense in lieu of that which is most practical.
But understanding the tension – which is most fundamentally a tension between wants and needs – brings us a long way toward developing that discipline.
Brian Lash is founder of The Tipping Blog and writes about the entrepreneurial experience at BrianLash.com.
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I think Mitt Romney’s transformation of the Salt Lake City Winter Olympics is a prime example of this in effect. By cutting unnecessary expenditures that didn’t help in the general organization of the event (namely big buffets and lavish dinners etc.), his strategies managed to pull the Olympics out of the red.
I think this is definitely an important problem, and generating the right discipline is necessary.
To play the devil’s advocate I will add that in some situations the S Mercedes or the Rolex would seem to matter. My discussion with an investment specialist in Singapore about his purchase of a BMW 5-series proved this. He mentioned that the only reason he bought it is to prove that he is successful and is good at what he does. At the end of the day, the 80,000 mile Civic is more practical, but when entering the upper echelons of business transactions, where millions and even billions are at stake, the material objects could just help secure another person’s trust.
Then again, that might be a cultural thing. It is ridiculously hard and expensive to get a luxury car in Southeast Asia, whereas in the United States it isn’t. Oh car payments.
Which car I use? I don’t use a car – I have a bike and if I need to travel for a longer distance the train is less than 10 minutes away!
I could perhaps afford a car in the future, but I will never buy one. Why? It’s polluting and if I don’t pollute – if I’m enviromentaly friendly – then I will look better in the eyes of my customers.
The robotic company did what was clever in the eyes of an entrepreneur like you – but it differs between which contacts you have to deal with.
Some contacts prefer effective companies – some prefer class. Some prefer muscles and Ferraris – some prefer enviroment and bikes.
It’s all about choosing the right form of the function but yeah – that was what you said
Yet another nice blogentry from you guys!
good article!
i think we all struggle with these things expecially as young entrepreneurs because our generation is even more materialistic as a whole than compared prior generations. because naturally, we do want people to think that we are successful, and some times we don’t look like the rich one when pulling up to the stop light. It is important to keep things in perspective though.
on a different angle though—You are what you surround yourself with. If you want to feel like $1million some would claim you need to look like you’re worth $1million. And then the cycle continues as now since you have the confidence of $1million man you will inevidently become him. As a man thinketh, so shall he become…
All in moderation of course.
Great article. Yeah, I’m all for saving capital, pushing money back into the business, and not spending money on unnecessary materialistic items that we “pretend” that we can afford — or buy just because we can. However, if it brings personal joy and if you’ve worked hard for it — the by all means, live it up. And, I agree, that some businesses will “need” to appear a certain way to attract certain clients. We all have different reasons, let’s just hope that we make good decisions with the capital that our businesses generate.
i’m frugal/moderate about most of life and business expenditures – believe me, i am. and i believe everyone should.
but when it comes to my car – i absolutely must have/drive a porsche 911 turbo. if it’s any conciliation for the sake of this pro-frugal article…it was purchased in the bottom tier market price range. ’01 year for 60K