Today we’re going to talk about the difference between being cheap and being frugal as an entrepreneur and how it can affect your business’ success.
I often refer to myself as the cheapest person alive. I’m not big into spending money for the sake of spending money and I love a good deal. However, I spend a huge chunk of my time traveling the world and exploring new countries, which doesn’t come cheap even when you do it in a cost-effective way. Clearly, I’m not actually cheap, I’m frugal. A cheap person would refuse to spend money no matter what, a frugal person knows the value of money and only spends it when they’re getting their money’s worth or more, but they don’t sacrifice any quality of life.
“Uh, great, Cate, but I’m not in your happy hour or vacation circle so why do I care about your spending habits?” I’m sure you’re probably thinking. Here’s where I’m going with this though – the difference between cheap and frugal can mean a major difference in your happiness level in life and the same difference between cheap and frugal can make a major difference in the success and growth of your business. A cheap entrepreneur will stunt the growth of his or her company by refusing to invest in it because he or she pinches every penny. A frugal entrepreneur, on the other hand, will help their business grow by responsibly controlling costs but investing in high ROI activities so that the business can reach its full potential.
Now, frugal entrepreneurs are often reformed cheapskates, so here are some tips for determining whether you’re cheap or frugal and how to decide if you should spend money or not.
The first question to ask yourself is, “Are you always on the defensive?” I hate unsolicited sales calls as much as the next guy, but one way to determine if you’re cheap or frugal is to examine the way you react when someone approaches you about their product or about a partnership. Are you immediately suspicious and defensive and your only goal is to figure out how to get rid of this person or do you listen to see if there is a real opportunity in what they’re presenting to you before you decide whether or not to have a real conversation? If you immediately chase them away, you’re probably cheap. Don’t get me wrong, I agree that the vast majority of people who approach you about a product or partnership probably don’t have anything of real value to offer, but how would you know if you don’t even let them speak? You’ll eventually miss out on some great opportunities for your business if you’re never open to the possibility that someone might have something to offer.
Next, ask yourself if you’re spending more time focused on making money or more time focused on not spending money? Clearly, the purpose of a business is to make money, not to hoard the money it already has. If you have an opportunity to make $100 but you’d have to spend $20 to make it happen and you say no, you’re probably cheap. You’re focused on not spending money more than you’re focused on making money and that mentality will run a business into the ground.
So, if you’re cheap, how do you stop it? Try to take yourself out of the equation. When you’re evaluating whether or not to spend money on a new initiative, new equipment, new team member, or whatever else, pretend you’re an outside consultant. This is not your company and it’s not your money. Your job, as a consultant, is simply to determine if said initiative will have a positive or a negative ROI. Anything with a positive ROI, you’ll recommend your client do. Anything with a negative ROI, you’ll recommend your client not do. It’s as simple as that. If you would recommend it to someone else because the ROI is positive, you should do it yourself, even if it means parting with some cash upfront.
Being frugal vs cheap can be the difference between success and failure in your business, so make sure you’re honest with yourself about which category you fall into.