In Silicon Valley, startups are being created for world-changing problems every day. Once they raise funds, companies will try to hire top talents in town with unique perks and attractive packages.
Magic often happens when smart people work together. The success continues by raising bigger funds, hiring more people, and offering better perks. From the outside, these successes are often perceived simply as “more money, bigger size.” In reality, great inventions are often born from resource scarcity. Even for companies that have raised a large amount of funding, frugality is still an important factor that drives continuous success in their investment.
However, it’s easy to ignore this success factor even within very successful companies. Once the company speeds up its investing wheel, people will focus on spending and growth. We often see small startups failing by spending their money too quickly.
A company’s early success often blocks them from seeing their mistakes. Employees will be encouraged to focus on capturing an opportunity instead of how to approach future opportunities. Half-baked solutions are built quickly and start piling up. They eventually form the monolithic infrastructure the company lives on and become liabilities when competition catches up.
This can even become a life threat, when the real leaders with optimized processes and efficient infrastructures join the race, like Facebook, Amazon, Google, etc. Those legendary companies have valued frugality early on, making it a part of their culture to keep fueling their success. For example, Amazon is well-known for purchasing only economy tickets for transport, even for senior executives.
When thinking of the cost of business, every line item matters. This includes office rentals, equipment expenses, food provisions, employee travel costs, etc.
Costs cover every employee’s daily activity.
It’s important to establish discipline early on. It often takes much more effort to correct behaviors later. Once people get into the habit of ordering luxury hotels for business trips, it is demoralizing to ask for downgrades.
Sometimes, it’s still worth thinking a little harder about a purchase, even if it can be justified. For example, many mobile app companies cover the cost of new smartphones for their engineers. Employees always prefer getting the latest iPhones or Pixels to try out new cool technology. It keeps them up with the trends. However, aren’t such employees already the kind of people who tend to purchase the newest and top-performing devices? Are they representative for your growing user base?
Frugality is not only about the monetary cost; sometimes it is even more about your employee’s time. In other words, it’s about how all of the organization’s resources are allocated.
In hindsight of both good and bad personal experiences, I think frugality should be baked into the decision process as early as possible. When new opportunities surface, the focus should be how we approach it. Does it align with the current strategy? What’s the minimal cost to capture it? What’s the minimum viable product to test the hypothesis?
Frugality should also be about your customer’s time. For every new feature to add, does it create unnecessary steps for your users to get what they want? Are you adding unnecessary elements to your UI to create extra cognitive friction for users? What’s the marginal value of each feature?
Google pushes to the extreme on this type of practice. After 20+ years, its search home page stays simple, with a Google logo and a text field with two buttons. They also A/B test every minor UI change (font size etc.) and algorithm updates. Internally, Google ferociously optimizes its server performances, data center efficiency, etc.
When engineering teams are thrifty, they come up with creative solutions. In Google’s early days, the team utilized all sorts of old, cheap, borrowed computer parts to build their initial infrastructure. Their engineers came up lots of creative solutions to support their user growth with limited resources. This eventually led to the creation of Google data centers and various technology (like map reducing, bigtable, etc.), and nowadays they keep powering Google’s cloud business. This type of engineering virtue can even be seen at the code level, where each line of new code is reviewed, every parameter of an API is debated, extra usage of UX is tested, etc.
Frugality leads to efficiency, and efficiency becomes the differentiator. It leads to more efficient designs, better architecture, and less operational costs.
Some argue that this slows things down for startups. However, in practice, it often adds more velocity in the long run. Simplified product design and clean infrastructure will help new hires onboard faster. The infrastructure is more scalable for new services. The codebase is better organized and more easily extended.
Frugality is a culture toward resources. These resources include time, money, product assets, and even your customer’s time and cognitive load. Frugality can be reflected in every part of the organization. It can be found in the travel expense policy all employees follow. It drives the decisions on purchasing printing papers for the office. It also appears in resource allocation for projects.
The difference between good companies and great ones is that frugality is either one thing everyone thinks of before making any decision or it is the only thing that draws their attention on the balance sheet. For great companies, the culture of frugality drives innovation, keeps user interfaces simplified, lowers business costs, and empowers efficient engineering design and high-quality code.
All of these build the economic moat for the business and fuel the company through the most ferocious competitions ahead. It’s one of the most important values to embrace for the long-term success of a startup.