When I started my own business some years back, I picked up a book called The Frugal Entrepreneur. It was full of advice on how to save money and set up a business on a shoestring.
Much of the advice was interesting, but a few chapters in, I just laid it aside, and I never picked it up again. Why? Because in the end my assessment was that much of the advice qualified, for my situation at least, as penny wise and pound foolish.
I learned how to save a few dollars printing up postcards, how to buy used file cabinets and office furniture at auctions, where to find cheap paper goods and office supplies, and so on. But I soon realized that time was money and that my time would pay greater dividends if I devoted it to selling my product instead of hunting for bargains.
It might take me half a day to find an incredible deal on a used fax machine and save myself $200. In the same four hours, working the phones properly, I might have been able to sell $1,000 worth of merchandise.
So my approach from then on was to shop intelligently for what I needed, avoid spending money stupidly, and steer clear of luxuries and extravagance – while devoting as much time as I could to maximizing leads, sales and revenue.
Example: Early in the game, I gave up “saving money” by packing and shipping my own orders, and signed on with an order fulfillment service. I paid them $15 an hour and used my own time in much more valuable ways.
Watching the outgo
Of course, every business has to watch the expense side of the ledger – keeping costs down is part of earning a healthy profit. But it’s important to recognize the point of diminishing returns on cost-saving efforts.
Items like employee compensation, health insurance, and equipment investments are big-ticket expenses that deserve the owner’s attention. Shopping for items like desks, chairs, work tools, hoses, hardhats and gloves are probably better left to dedicated, cost-conscious managers.
Even when the owner takes a hands-off approach to individual expenditures, it’s possible for a company to be excessively cost-conscious. I once worked for a business with 100 employees where the owner personally signed off on every expense item – down to $6 for a roll of camera film and $25 for an employee’s mileage on a short trip.
Once, in his message at an annual team meeting, the owner stressed the importance of each employee avoiding $10 mistakes – this in a professional service firm where employees’ time was billed out to clients at $50 to $150 per hour.
What can such a message do besides put a chill on any activity that might entail the risk of making a mistake that would waste some amount of money? Shouldn’t employees be encouraged to be aggressive and take measured risks to help win new customers, sell services and earn more revenue?
And on a smaller scale, wouldn’t every extra hour spent scrutinizing costs mean a billable hour foregone? Where’s the profit in that?
Considering value
In essence, this issue seems to come down to a concept often mentioned in land use planning: highest and best use. What is the highest and best use of each employee’s time? That of course includes the owner’s time.
In the earliest stages of a business, watching costs is critical, and as the sole employee, or one of a very small group, the owner often takes on that job, with a vengeance. At some point, though, the owner needs to let it go.
How much of the owner’s time, or any employee’s time, is best spent, in the immortal words of George Bailey, “trying to figure out how to save three cents on a length of pipe?”
Perhaps the highest and best use of every employee’s time is working on things other than ways to shave pennies off the costs of routine, trivial items.
Time for training a receptionist to answer calls with energy, time for staff to make follow-up calls to check on customer satisfaction, time for technicians to clean up work sites thoroughly, time for managers to devise new approaches to marketing, time for the owner to develop a long-term business-building strategy – the benefits of hours spent in those ways are sure to outweigh, by far, a little excess spending on paper and toner.
