Money management and costs 1/2
I can't believe I am writing this
A personal note
Dear reader,
Welcome to the latest edition of The Systematic Venture. I want to start with a personal reflection: it feels strange to write this article because I have not been good with money in the past. Not long ago, I was a careless spender — deep in debt, often gambling, wasting money, and relying on friends for help, whether to impress someone or pay for a trip. While I was good at making money through side jobs, I was just as good at wasting it on unnecessary things.
This pattern persisted until a pivotal moment: my income increased significantly without a proportional rise in my expenses when I got my first job1. My needs and desires remained consistent — mostly books and boxing gears. This surplus led to an unintentional, yet effective, personal cost management strategy.
Then came my entrepreneurial journey. I realized I possess a relative proficiency in and am eager to share tips about: frugality.
Frugality
Company financials are often less complex than your CFO might suggest. The formula for success is relatively straightforward: maintain healthy margins and ensure that your actual, cash-flow-based revenues grow faster than your costs. If your company loses more money as it grows, has uncontrolled cost structures, or poor cash flow management, where suppliers drain your bank account faster than clients replenish it, you're likely headed for failure 2.
What does frugality have to do in the matter ? Well, it’s not magic, and Charlie Munger, Warren Buffett, Jeff Bezos, or John D Rockefeller all sung the virtues of it at some point in their carreers : Watch your god damn costs. In practice, it means different things.
Tech costs
Opt for free or more affordable software can provide exceptional value. Consider using Odoo CRM instead of HubSpot3. Create a website on Webflow for about $25 per month, rather than employing a full-time developer for the task. Avoid system duplication; you likely don't need Slack, Outlook, Trello, Jira, Linear, and Usersnap all running on premium modes simultaneously.
If your operations involve cloud computing, assess whether you truly require massive EC2 instances, or if your serverless deployments are optimized. Ensure your algorithms are efficient and avoid redundant computations. Your SQL, Aurora, or PostgreSQL instances might also be more expensive than necessary. You might not need advanced options like geographical replication or super high-speed disk access; a standard SQL Express Server and a hard drive backup could suffice.
If your tech team is draining finances and product development is sluggish, consider hiring someone or, if capable, review your developers' performance yourself4. Some developers might only be making minimal weekly contributions, waiting for a lead developer to merge their work or, worse, return trashy code. In development, the adage "1+1 is not 2" often holds true; a smaller, more efficient team of fewer than five developers can be more effective in the initial years. Modern tools provide significant leverage, and you may not need separate devops, native mobile developers for each platform, or a distinct product for each microservice.
Invest in affordable yet highly effective performance enhancers. Encourage your developers to use Visual Studio Code paired with automatic code completion tools like OpenAI. Implement streamlined processes for testing staging versions, deploying updates to production, and gathering user feedback efficiently.5
HR costs :
If your company feels bloated yet lacks high margins or revenues, you might be experiencing what I call "compulsive hiring." Many CEOs, when faced with challenges, instinctively turn to hiring specialists. However, a problem without a solution is often a problem that's poorly defined. In most cases, additional hiring isn't necessary.
Before considering new hires, analyze the bottlenecks that led to this conclusion. Can these tasks be solved technologically? Is the task actually a side-task for an existing employee6 ?
View your team as a unit-economics, and weigh its costs against revenues, particularly with new hires. Large tech teams with numerous product managers don't necessarily outperform smaller, client-focused teams with a fast, iterative process.
Ensure the new role's function can be explained simply, even to an eight-year-old. If you're seeking someone to "assist in product strategy and guide developers based on market trends for new features," it might be better to align your clients' needs more closely with your tech team and engage in some strategic thinking yourself: what are clients clearly asking for?
Finally, assess whether the new role directly benefits your customers. If the answer is a clear no, reconsider the hire. If the addition won't enhance customer experience, it's likely unnecessary. This is, in my opinion, the single most important
In practice
Frugality is not about having less; it's about making the most of what you have.
Every month, check all your subscriptions and cut the unnecessary ones.
Cut nascent bureaucracy and inefficiencies as soon as they appear.
Replace, de facto, 95% of internal meetings with one-sentence emails.
Forbid voice notes.
Give each one full liberty on at least one task, and cut hierarchical burden to ask before acting: bias to action.
There’s no such thing as escalation: one must talk to the most qualified to solve a problem.
If somebody wants a meeting, ask - ruthlessly - for an email.
Buy cheap software with strong API ecosystems.
Don’t invest in anything useless, lavish company lifestyle, hoodies, goodies, nonsense for LinkedIn pictures: make people work efficiently and give them more free time. Increase salaries regularly instead of hiring new people constantly.
Don’t expense anything if you are not loaded with cash, that’s it. Zero is the basis.
The default response to the question: should I hire? is No.
Algorithms should solve issues internally, and humans face the clients, not the opposite.
Only hire when it serves the customer.
Deploy more versions of your product, with fewer changes.
Watch your costs like you’ll die if you don’t.
Cut cloud computing costs, use smaller machines, smaller databases, run things locally, buy a template website and run it for cheap on Heroku or Webflow.
Don’t go to conferences if it's not for facing customers.
Watch your fucking costs.
Keep the faith, next week we will talk about cash flow.
Voss
And where I realized how lame were investment bankers and consultants.
A note on leverage : I'll get into this more at the end of the article, but for now, remember this: while leverage doesn't always lead to financial ruin, all financial collapses have begun with excessive leverage. My advice is to avoid it when possible, or manage it carefully so that your entire equity isn't at risk. Avoid situations where you face limitless downside and limited upside.
We shrinked our marketing and sales software costs from $1300 monthly to $48.
BitBucket and GitHub have simple but effective activity dashboards
Azure WebApp synchronized with BitBucket or GitHub, with a standard widget on your app for sending user feedback, like Usersnap.
Teach your front-ends some product skills.