Money is tight for startups, but that doesn’t mean you shouldn’t spend it when the right opportunities come along.
I’ll never forget the first “big” purchase I made as a startup founder. My longtime co-founder and I had just launched our new startup together, we were in our early 20s, and we’d been given a whopping $25,000 to participate in a startup accelerator program.
To be fair, $25,000 isn’t a tiny amount of money, but it was the only money we had, and we needed to use it to support ourselves and our small team for three months in Philadelphia — including rent — while also paying for business expenses. Plus, we weren’t generating any revenues at that point, meaning the $25k was all we had, and surely it wasn’t going to last long.
Despite our anemic bank account balance, my co-founder and I were debating whether it was appropriate to use roughly $4,000 of that money to buy ourselves new laptops. We both already had computers, but they weren’t in good shape. His was an old Windows laptop that weighed as much as a desktop and needed to be plugged into a wall to work. Mine was an even older Windows laptop that had a nasty habit of shutting down randomly at least twice a day, often causing me to lose work plus whatever time it took for the dinosaur of a computer to reboot.
Even with a laptop that regularly cost me an extra hour of headache each day, I argued adamantly against getting new ones. To me, $4,000 was far too much money to spend when we had extremely limited resources and no guarantees for when we’d have more money. Plus, the computers we had were working. Sure, they weren’t ideal, but we were scrappy, young entrepreneurs trying to accomplish our startup dreams. Of course things weren’t going to be ideal. If we had to survive on crappy laptops for another year or two, so what? It was the technology equivalent of eating ramen.
In contrast, my co-founder wanted us to get new computers. He argued the efficiency gains would significantly outweigh the costs.
We were having one of our many arguments about the issue before a meeting with one of our accelerator-appointed “mentors.” When the mentor arrived, we told him what we were fighting about, and he settled the argument within seconds.
“Of course you should get new laptops,” he told us, reprimanding me like a parent. “This is the stupidest possible argument you could be having. We’re talking about a piece of technology that’s critical to the success of your company, and not having high quality equipment is already costing you tons of time. Order the new computers, and get back to work.”
I was surprised by his certainty. “Really?” I asked. “How are you so sure? We’ve got very little money. Shouldn’t we be worried about spending such a huge portion of something that isn’t absolutely necessary?”
“Startups do need to spend money wisely,” he agreed, “but there’s a difference between spending money wisely and not spending any money at all. You shouldn’t hoard cash at the cost of not getting any benefit from it. In this case, there’s a clear problem, a clear solution, and a huge value to be gained. It’s a no-brainer. Any time you can spend money and be absolutely certain of the value, that’s a huge win. Solve your problem and get back to work.”
Despite our mentor’s insistence that we buy the computers, I was still hesitant about the purchase. But, I trusted him, and I trusted my co-founder, so, against my better judgment, I agreed. We bought two brand new laptops later that same day, and, by doing so, significantly depleted our startup’s bank account.
In retrospect, it was one of the best decisions I ever made as an entrepreneur, and I’m an idiot for having fought it as hard as I did.
After the normal few days of adjusting to new computers and getting our systems in place, our productivity skyrocketed. The machines were faster, more reliable, and much more portable. Plus, we used them constantly for the next five years, meaning hourly cost basis broke down to somewhere around 11 cents per hour, which is hardly the financial backbreaker I’d lamented during my overzealous resistance.
I’m sharing this mistake with all of you because it was one of my most important lessons in how to responsibly allocate resources while building a new company. Like every startup, you’re going to have limited financial resources. But don’t let a small bank balance prevent you from making smart choices with how to spend whatever money you do have.
Simply put, when spending money solves a big problem and generates a clear and significant ROI, spend it.
Yes, spending money is going to feel uncomfortable, especially when you don’t have much, but always remember that your most precious resource isn’t money. Your most precious resource is time. If you can definitely save lots of time by spending money, don’t waste unnecessary hours debating the decision. Buy what you need, and get back to work.