Startups and Frugality

Living in Silicon Valley, I have quite a few friends who have been expressing their desire to quit working for the Man and do their own thang… for the past few years. Or they have a side hustle but don’t feel quite ready to quit just yet. The most common refrains are “if I could just save up $X more, I’ll be ready” or “if my side gig can achieve $Y MRR, I’ll do it”

Accompanying these sentiments is the common assumption: I need to make sure I can ensure that my family will continue to have a lifestyle they are already accustomed to.

Look, I get it. I felt exactly this way too. I was proud to be the provider in my family. When I made the drastic change of quitting my job, my first instinct was to reassure my wife that our finances were secure and there wouldn’t be any negative impact to the family lifestyle. This is natural and maybe even admirable. 

But I now think it is a mistake. Yes, finances and savings are important and offer security, but why not take the opportunity to lower expenses too?

The few months before and after you quit your job is a magical honeymoon period. You are naturally exuberant, full of energy, everything is possible, the world is your oyster. So, it is a perfect time to reset your hedonic treadmill and perform an in-depth financial audit of your personal expenses.

According to wikipedia, “the hedonic treadmill is the observed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes…as a person makes more money, expectations and desires rise in tandem, which results in no permanent gain in happiness.”

So, seize this magical moment when you are temporarily happier than normal, to extract sacrifices from yourself (and family) and figure out how you can become more frugal. You will reset your hedonic treadmill at a lower pace without actually becoming more unhappy!

Quitting stable employment is a big deal, so emotional support and buy-in from your family is crucial. But if your spouse only supports your decision to quit if the family lifestyle is unchanged, that is a very strong signal that the support is weak.

Instead, combing through your expenses and having pragmatic conversations on the actual value you gain from each expense may give your family a deeper understanding of what you need and what you can do without. This helps build confidence that you can make do with less.

If you have older kids, involve them in the process and decision-making. If you eat out or order food in, maybe one of your kids would rather earn some pocket money and learn to prepare a meal rather than have the money go to DoorDash. Or maybe you all decide eating in is actually better for health and nutrition reasons (like how our daughter suggested we do Veggie Vednesday)

And these are just examples in the "eating out" category. You can have so many other wonderful conversations in each of the expense categories. So, this can turn out to be a  teaching/learning moment about what your family values and making such values explicit. We want our kids to grow up independent and offering this frugal mindset, in these practical real world ways, is an enduring gift.

And this leads to my biggest realization: applying frugality in everyday life is really daily practice to becoming a better entrepreneur. When starting a new venture, I want to be extremely conscious of my expenses, especially initially. This will provide my new company with more survivability but also optionality. To live another day, is to have a chance to be lucky another day. To save up is to be able to capitalize when that luck strikes.

As a startup, we try to zig when BigCo zags. Therein lies the opportunity because competing with BigCo head on is almost always a losing proposition (a la Christensen). And what does BigCo do much better than our wee startups? They know how to pour money to solve a problem. Ironically, this means that the remaining opportunities for startups are the ones where it is much harder to “just pour money” to solve. 

BigCo-thinking basically treats labor as fungible with money. So, when we focus on opportunities where this is not true, you can see how a frugal mindset goes hand-in-hand with other nuggets of startup advice such as do things that don’t scale and achieve cup-a-noodle profitability first.

Your life is your first venture. Like a startup, you should be intimately and viscerally aware of why and how you spend your money and time. As in business as in life, look for shiny dimes where others aren’t looking. Here’s to the joy of frugality. Practice it everyday.

Midjourney prompt: "A thrifty, frugal startup". If this is how the AI thinks of what a frugal startup is like, no wonder it's so uncool to be frugal! All the more reason to be!

Discoveries:

• I love Mr Money Mustache. Financial Freedom through Badassity sums his philosophy pretty well!

• For a counter and not-so-frugal perspective, I enjoy Financial Sammurai

• Taking Daniel Vasallo’s Small Bets class last December has been a great way to help me make explicit what I’ve been intuiting for a while

Finally, very grateful for my wife, Elaine, who has supported me through layoffs, business failures and rage quits!