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16 Mar 10 Spending vs. Investing
Last week, I wrote about the importance of making yourself replaceable to really be able to scale your business. No sooner did Colin of Exile Lifestyle write about being overhead free, not spending money on anything you can do yourself or get for free. The two posts are unrelated of course, but I still feel I should address Colin’s point of view:
Costs are not the problem
Colin correctly observes that his bigger competitors have overheads that mean that he as an overhead-free operator can effectively compete (and probably undercut, if he was competing on price) with them.
But costs/overheads are not necessarily bad, as long as they produce a return. The problem is that people in larger organizations are divorced from the wallet they use: they are not spending their own money, and their agenda in spending is not necessarily prudent or with any sort of intent to make a return, but rather to inflate their own ego, corporate fiefdom and follow broken processes.
Investing vs. spending
Using money to pay others to do work so you get freed up to do more high value work is not a bad thing, provided you get back what you spend either through cost savings or greater returns. Spending $100 to save or make $150 is just plain smart.
But, to be a bit repetitive, the problem with large corporations are that people in them will spend money frivolously due to the simple fact that it’s not their money. If you own a small business on the other hand, you are more likely to use money more prudently, because it is effectively your own money that you are using to pay. The main difference is between “spending” and “investing” - if you save or make more than you spend, you are investing, not spending in the traditional sense.
Using money to save or make more than you spend is smart, it’s a way of leveraging your success. The simple fact is no one can do all things and be everywhere at once. If you’re not prepared to spend to make or save money, you are being penny-wise but pound foolish, you are limiting your own potential to succeed.
Most people would agree that getting paid by the hour rather than by value provided is not a good thing. Trying to pinch every penny and do everything yourself when you could save- or make money by paying someone else is almost like pushing yourself back deeper into that paid-by-the-hour bracket that you probably want to escape.
