Frugality is a Superpower During Times of Existential Change
The difference between nothing and millions of dollars.
Martin here. Welcome to another edition of Founders’ Hustle!
I write bitesize newsletters containing actionable insights and insider knowledge across the full spectrum of company building from inception to exit.
In today’s newletter I’m discussing a topic that’s relevent no matter where you are in your company’s lifecycle—just starting out, seed, or Series A.
Unless you’re fortunate enough to avoid them completely, existential changes can hit you or your startup at any point. Dealing with them is an invaluable skillset to hone.
I’ve found they require a drastic recalibration of business and lifestyle in order to survive or thrive. Here’s how I’ve approached it…
One of the most powerful attributes a founder can have is resourcefulness. Creating something with little or unobvious material resources.
How can you achieve the same, similar, or better results with a lower quantity of enabling inputs such as time, money, or skilled-labor?
At any time, this is incredibly important. In times of existential change, it’s critical.
On numerous occasions and in totally different situations I’ve faced existential business changes that required me and my team to be super resourceful and lean in order to survive or thrive.
What do I mean by an “existential change”?
Here are some personal examples:
Quitting my 9-5 job with $8,000 in savings to work on 3-month-old website and growing it to become a top 1,000 most visited site worldwide in a year.
Pivoting my second startup from a lackluster launch making $73.20 per day to $17,448.11 within a year.
Rescuing a startup with multimillion-dollar revenue from collapse during a period of severe market changes and turning it around into an exit.
It’s survive or die, and wastage kills your company.
For example, what are the opportunity costs of spending a dollar or minute on X instead of Y? Is there a Z option? Which is going to move the needle faster?
That’s why frugality, or more specifically, strategic frugality, is vital.
It’s a process of streamlining your money and time expenditure ruthlessly to cut activities that don’t materially contribute to your objective fast enough. This will amplify those that do by several magnitudes.
It’s not simply just a cost-cutting exercise across the board. That can destroy your ability to test, learn, grow, and innovate. You may pull back on important momentum drivers. If you do that, you just end up extending your runway to nowhere.
You want to identify and keep the levers that are working and focus on them with laser precision and intense energy. Use an extremely pragmatic lense to do this. Usually, it’s just 1 or 2 initiatives in the early phases, and, barely more beyond that.
Strategic frugality doesn’t stop with my startups, either. Since the beginning, I’ve applied strategic frugality to my own lifestyle too, in order to support my startups.
Next, I’ll walk you through how I did this for my first startup.
The crazy thing is, the existential change my first business faced was the result of a successful launch. It wasn’t a failure to execute or a macro market event outside of our control. The opposite.
Here’s how that went down…
Personal Casestudy: 9-5 to Full-Time Founder
I founded my first company whilst working full-time in a bank.
In the 9-5 role I enjoyed a comfortable lifestyle and the typical indulgences of someone in their early 20s — apartment in a fun part of town, traveling, eating out, partying, cars, live music, lots of taxis (pre-Uber!) and creature comforts, etc.
As I got more serious with my side hustle startup, I considered quitting my job.
Actually, that’s an understatement. I practically obsessed over quitting my job to pursue my startup full-time. So much so that I nearly quit way to early to work on a product that flopped!
We were really fortunate in that our second product had great traction from day one. But, the result of that meant we quickly appeared on the radar of some pretty aggresive competitors. They wanted to eat us alive.
Our initial traction was fantastic, but it could have easily fizzled out without doubling down on our growth levers. Unless we pushed the accelerator to the floor at that point there’s a good chance we would’ve gone backward.
So, we needed to seize the day and capture as much market share as possible as quickly as possible. Keep the momentum.
I was head of sales, so it was down to me to sign up new customers and grow the business faster. Going full-time seemed like the obvious solution. I would gain around 10 hours per day to put into sales. It would apply a much-needed boost to a crucial growth lever.
But, there was an issue. The business wasn’t making that much money yet and I didn’t have much in the way of savings to survive off of. And, we had been focusing on product and growth, not so much monetization. Cash was limited.
We had applied strategic frugality to the business to get us to post-launch traction. I needed to extend strategic frugality into my own lifestyle to take the company from post-launch traction to post-launch sustainability.
There was urgency to this. So, I ran some numbers and realized if I were to recalibrate my lifestyle I could exist off a much lower monthly cost and move full-time with my startup straight away.
Not just a little bit. Like, incredibly lower. By doing this, quitting my job became something within reach rather than in the seemingly distant future.
The amount of money I needed was much lower than I initially thought because most purchases are creature comforts or “nice to haves”. They could be eliminated.
I looked at the tiny amount of earnings from my side hustle and realized it was possible for me to live off of that, with a combination of a small amount of savings tucked away. Theoretically indefinitely if nothing changed, but practically a year or so.
But, this was only realistic if I radically changed my lifestyle and took cost-cutting to another level. You know, taking things up a gear and deleting expenditure from the “you should probably keep that” category. A ramen wage.
To be transparent, I took about $1,300 per month from my side hustle as a salary full-time and had around $8,000 in savings.
I cared 10x more about my side hustle than my lifestyle, so it was a no brainer to do this.
So, off I went canceling obvious recurring payments like premium credit cards, gym, tv package, The Economist subscription, wine club, pension, dentist plan!
With a couple of exceptions, my social entertainment budget collapsed. No more bars, eating out, hipster coffee, and minimal takeout food.
No more “unnecessary” purchases like clothes, replacing broken appliances, or upgrading a phone.
I sold my car, which meant cash in my hand and no ongoing car insurance, road tax, upkeep payments, etc.
I also went through each of the expenditures I was forced to keep and negotiated lower rates — phone, Internet, utilities, etc. It’s amazing what you can achieve just by calling them up.
Any cost that I didn’t absolutely need in the immediate near term to stay alive and work was cut.
My co-founder even managed to beat me on this by deciding to live with his parents so he wouldn’t have any rent or utilities to pay.
Doing this bought our company time to focus on the two key growth levers we had identified: sales (cold emailing) and product (making the core value proposition even better).
It paid off. Within a year our website grew to become one of the top 1,000 most visited sites worldwide.
To be clear, I am not trying to glorify living meagerly. It was just a means to an end for a short period to get to the next stage, which we did. Ultimately, it’s not sustainable.
Once my startup was making more money I increased my salary accordingly. Most of the items I cut were reinstated. I even bought my car back, which felt like a big win and validated my new direction in life.
The fantastic thing about cutting costs is the fact it’s quick. You’ve gained a ton of runway without really spending much time or cognitive energy to do it. And, it’s happening right here right now. You can move fast.
That’s instead of, say, delaying going full-time because you want to build up enough of a revenue stream from your side hustle first so that you can keep your creature comforts. Or, doing work on the side to increase your earnings. All of this takes time and cognitive energy.
How you personally approach cost-cutting psychologically is the key to being successful. You have to mentally last the duration of your financial plan otherwise it will fail. Particularly if you’ve been used to a comfortable lifestyle. It can come as a bit of a shock.
What worked for me was approaching cost-cutting as a challenge or game. That’s one of the great things about money, it’s numerical so it’s easy to use as a score. Mostly, it’s used in the context where more is better, but I flipped it in reverse (like golf).
Each month I would try and beat my personal best score of lowest expenditure. You could even break this down into week or day. That could make it even more effective.
When I cut a cost I also didn’t view it as losing something but instead gaining money. Every time I didn’t buy something I looked at the price and considered that earnings.
Just canceled your Netflix and Spotify premium accounts? That’s like a $300 win over the course of a year. Cash in your pocket.
Incidentally, $300 turned out to be a similar amount of money that I needed to get my side hustle product in the hands of our first customers. It makes a difference.
Business Casestudy: Saving My 2nd Startup
My second startup grew really fast once we figured out product-market-fit. It became a multimillion-dollar business within the timespan of just one year with dozens of employees and hundreds of B2B clients.
But, a couple of years later the business faced an existential change. Markets moved against our favor and our customer base shrank. We put in place product initiatives to try to counteract this, but it didn’t work out.
It came to a point where we realized our company was on a trajectory to bankruptcy. That’s when we went into survival mode and implemented extreme strategic frugality.
The objective was to get back to sustainability and have the bandwidth to take another shot at goal with a new product.
Prior to this, over the course of a few years, our product roadmap had become bloated.
We had used the profits from our first “hit” product to fund other endeavors, none of which really paid off. And, the total addressable market for that “hit” product was shrinking.
To start, despite all of these costs, we were still making a profit. But as the market continued to turn against us monthly losses mounted. Four figures, then five figures, then six figures, and it kept on climbing.
So, we had to get back to our roots fast. Focus on profits we can make here and now.
We identified a key group of customers that still wanted to use our “hit” product offering and focussed on catering to their needs, and, attracting others like them.
All other product initiatives were scrapped. We canceled or renegotiated B2B contracts, ditched our office in favor of working remotely, cut our salaries, cut travel, canceled using consultants, capped professional fees, and cut all costs until the business was only paying for a few salaries, a handful of inexpensive B2B contracts, and accountancy fees. It was a drastic reorganization that, regrettably, involved letting go of a lot of staff.
But, it had to be done. Client drop off rates leveled out. Then, we gained more. We started to break even. Then, we made a profit. The business was saved from collapse and turned around to the extent that a company liked it enough to buy it.
Getting back to sustainability gave us time to breathe and the bandwidth to figure out the long game with a new product, which was later spun out into a different company.
Until next time,
Thanks to Kevin McCutcheon for the image.
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