My office is in a cookie factory.
I am not in the business of making cookies, but I sure as heck like eating them. Especially the toffee-chocolate chip cookies. Yowsers, they are good!
I’ll explain in a moment.
Frugality is a way of life for me, something that I became acutely aware of as I gained more experience as an entrepreneur. In lean times, and even when the sky seems to be raining money, I’m the guy who will always try to find a way to eliminate or drastically reduce costs. Simply put: finding creative ways to save money makes me feel good.
As an entrepreneur, my evolved frugality has become a blessing. Cash is the lifeblood of business, after all, and I’ve seen too many promising companies go under because they can’t cover payroll or meet consumer demand. I’ve had my share of cash crises, but I have always weathered the storm—partly because I don’t overextend myself, or my company.
I wasn’t always the frugal type. Truth is I nearly crashed my first company because I was spending cash like it was Monopoly money. I bought things because my ego thrived on it. In fact, before I woke up and changed my ways, my first company ran on ego and loans. Later, it survived on my drive and my personal savings. Finally, it kicked major ass when it was fueled by my passion and newfound commitment to frugality.
Why We Spend More Than We Have
There are two main reasons why most entrepreneurs (and I used to) spend more than they have to on things they really don’t need:
1. It’s human nature to spend what you have. Whether you’ve got $1,000 or $100,000, you will find a way to spend all of it unless you automatically deduct a percentage of your revenue as soon as you receive it. We have a false perception that what is, today, will also be tomorrow (or even be better). If we make $100,000 today, we feel we will always make at least $100,000. But success is not a direct path upward; it is more like a hornet’s nest that weaves and knots its way upward.
2. It’s human nature to follow the status quo. When setting up your business, you’re likely to look to other businesses in your industry as models for how to do just that. This approach will lead you to spend money on things you don’t need (or even want) just to appear more “legit;” things that, in the end, are of no benefit to your company. Fancy business cards, bored receptionists and nearly empty offices are all too common for first-time entrepreneurs.
Better Expenses
Whenever I consider taking on a new expense, I ask myself if it would help me to better serve my clients and reach my goals. And if I do need it, I ask myself how I could get it for free or almost free.
Which is how I ended up operating out of an office in a cookie factory where 90% of the people don’t speak English.
I had a perfectly nice office close to my house when a colleague mentioned he had a bunch of empty offices on the second floor of his cookie factory, a couple of towns over. In exchange for serving as his consultant, he offered me my pick of offices rent-free. That’s right. I don’t pay a dime for my office space, or my parking space, or electric, or Internet, or the endless supply of cookies. Could I afford these things? Absolutely. But why should I spend the money on office space when I can get it for free without negatively impacting my business?
Most people would expect me to operate out of fancy building with all of the usual trappings. What they get instead is a building that smells like cookies baking and an exchange that goes something like this:
“Is Mike here?”
“Quién es Mike?”
“Mike. The guy who wrote The Toilet Paper Entrepreneur. You know, the toilet paper guy?”
“El baño está ahí.”
I guess there’s some irony in the fact that, when people ask for me, they’re directed to the bathroom. But I’m saving money, which I can use to grow my business in a meaningful way. And if my industry experiences an unexpected downturn (I’m sure you’re intimately familiar with this reality), I’ll have enough cash to stick it out.
What could you cut today that would have zero impact on your clients’ happiness? What could you get for free or at a reduced rate? Give me your best frugal ideas in the comments—I want them ALL!
The Chocolate Floor
PS: When visitors inevitably do need to use the bathroom at the cookie factory, they often run right back out with horrified expressions on their faces, sputtering, “Uh… the floor… it’s…”
My response is always the same: “Don’t freak out. It’s just toffee. Delicious toffee.”
Here’s a small tip I recently pulled off in my business.
I’m in the Vending bussiness- and I’m on the rebound – (sales slumped 30-40% in the downturn)
I built a building in 2004 to house my company & 3 tennants. I had to sell my building to survive.
Pride aside- you gotta keep going.
Here’s the tip— I had a rent of 1000 (one thousand) per month as a NEW tennant in MY old building I had to sell– (I made it a condition of the sale price that I could rent at 1000- & Even that was expensive in these times. So- I threw out all the JUNK in my warehouse – sold an extra truck that was parked inside– and made room for a ROOMMATE
I brought in another Vending Company to share space with me– I reduced my rent to 500 & now we combine our ordering power which eliminated the delivery fees on orders that didn’t meet minimums as well – for another monthly savings of 480 dollars.
Total Monthly Savings– 980 Bux
Nicely done. Very, very nicely done. I love the idea of bringing in an office roomy who can also compliment your business. Very nice done.
And the bottom line of $980/mo speaks for itself. Did I say “nicely done?”
-Mike
Kind of like growing my business out of my current location till its too small, before moving into a new bigger location and trying to “grow into it”…
OR…coughcough flying out of JFK, versus EWR to save a few bucks…coughcough
Cough…. cough… like a few hundred bucks cheaper. Don’t try to hide from me with those goggles of yours. I know exactly who you are… and who your sleeping with.
Mike, love the new blog…I had to choose the image of you completing me :).
It’s just like in your book; it’s a lot harder to make wise money decisions when you have an influx of unearned money from a VC or bank loan.
When you’re bootstrapping and having to wipe your ass on only three single ply sheets you’re a little more careful with how you fold the squares before initiating the wipe.
Kyle – Great to hear from you, brother. I totally agree. The lack of cash makes us feel every penny… and make smarter decision. Excess cash, results in dumber decisions. At least is has for me.
Enjoyed this post. I founded my boutique PR firm in my home and have remained there for the past 23 years. My commute is less than a minute.
Now that is what I call a killer commute! Nicely done.
Mike, five years ago when I reached the lowest point of my career, I made two company-saving decisions: 1) I decided which costs were ABSOLUTE to running my business; which cost were frivolous; and which could go either way. Today, before I will add another cost, I have to make a decision about my current costs: Is the new cost more valuable and equal to or less than a current cost? Works like a charm.
2) I placed myself on a cash-only basis. If I don’t have the money ‘in-hand’, I don’t buy it. The ONE exception I make is if I have the money arriving within 5 days; then and only then will I place the cost on a credit card.
The result is that my costs have maintained the recommended cost vs revenue for my type of business—29.2% of gross revenue. AND, I have not built up $.05 worth of debt. My business is GROWING, because I look for very cost-effective ways to get things done!!
Randy – Tell me more on how you converted from credit cards to cash. That must have been a hard transition. How did you do it?
One big area that causes people to spend too much on their business is they are working in the business instead of stepping back to work on the business. Another area is to look at Lean methodology and use of Six Sigma through process improvement. There is almost always room for improvement in any business be open to ideas and ask for help when needed.
Agreed. Working in the business is a trap…. results in spinning wheels. But as I say that… I am working in my business. I am (hopefully only in part) blind to my own trap.
Do you recommend any good books for Lean Methodology?
Hey Mike,
Right on man!
It is way too easy to spend on $hi% you really don’t need. As you allude in your post, ego, and percieved status can suck you in to dubious purchases, that really don’t contribute to your enterprise.
Thank God, my wife and business partner is much more frugal than I, and keeps me in check on that front.
The cookie factory is awesome! Now a fish processing plant, might be another story.
Keep the good ideas coming, and for keeping it real.
Peace
Denny
Thanks Denny. I need to photograph the place a little and put it in the post.
That is a great point about a fish plant. That would TOTALLY be an issue.
Peace!
Thanks for the inspiring post. Its good to know that other successful entrepreneurs are frugal from the start and maintain that approach even when they see the $$. PS, love the new site!
Thank you so much Lori. I feel frugality is good… if it is genuine and humble. Being cheap, I feel, is not so good. Strange / hard balance.
In the tax business 2 main areas could and will be cut. One is Clients that we obtained by not sticking to our belief system and who waste our time and energy. Then the other area and this is where I have an ax to grind more than it being that huge of a problem and that is our telephone bill. With 6 offices it is amazing how much they charge and then come to find out our first four years after doing a audit of our own bill we paid thousands of charges we never authorized that Bell South allowed and told us tough luck!
Mr. Payroll – Love to see you enjoying all the blog posts. And LOVE the feedback and insights you give. You sir, are awesome.