Get used to spending Money

Photo Credit: Justin Raj

I recently took part in the ‘angel investment’ fundraising round of a startup. While I did the ‘business’ side of due diligence myself, when the contracts arrived, the legalese was a bit overwhelming and tiring to read, understand and make sense of. 

Since the investment wasn’t very large, I sent it to my brother (who is a corporate lawyer) to take a look. 

There was a tiny voice at the back of my head which told me to hire a lawyer to look at the contracts but out of the sheer inertia of never having hired a lawyer before (and the thought of spending money when it could be done for free inhouse), I put it off.

Over the next few days, when I finally got around to finally reading the contracts, I realized there were a couple of points which needed further clarification. My brother wasn’t also fully sure about them so I finally decided to get a lawyer.

Was wondering where I could find one when I remembered Rahul Dev from the last Rodinhood meetup in Gurgaon.

I got in touch with him and he very efficiently delivered an opinion in two days. Even though he gave me a ‘Rodinhooder’ discount, it did pinch a bit but when I thought about it later, It wasn’t about the quantum of money. It was more because of the fact that I hadn’t budgeted for it and seemed like an unexpected expense 😉

So where am I going with this ?

Over the last two years since I started my company, like most entrepreneurs I had been trying to get most things done myself. It was only much later that I realised, its much more efficient to pay for the right expertise and get things done instead of just trying to save money.

If you are an entrepreneur and are starting out or have just started, Get used to the idea of spending money. Stop thinking of a startup as just a website or an app and starting thinking of it as a cash flow positive, revenue generating business.

Any successful business requires multiple functions including product design and development, sales, marketing, operations, HR, Finance and Accounting etc. While you can (and should be) aware of what each of these functions entail, don’t get into the trap of ‘mastering’ each and everyone of them. You will only end up delaying things and killing yourself.

What one should be aiming for instead, is to figure out where one’s greatest strength is, and focus on them.

Even though you maybe trying to bootstrap something on your own with limited funds, the idea of spending money for different functions will instill a discipline into your overall budgets which will ultimately reflect in your service / product pricing and come handy when you scale up.

I was reading KPCB’s Internet Trends -2013 report and one of the figures on the slide below jumped out.

If you look at the CAPEX figures, you will realise that all these companies have spent a significant amount of money in building the products.

I guess this is also one of the reasons why startups in the US are more successful than anywhere in the world….Coz they spend where required instead of trying to cut corners.

In India, generations after generations have been told to save money instead of spending money (Atleast I was told by my parents to save instead of spending).  It was only much later in life I realised that folks don’t get rich by saving. They do it by increasing their earnings.

There is a particular anecdote about how Shah Rukh Khan’s mother once told him “Beta, don’t focus saving money to meet your expenses. Focus on increasing your earnings so that you wont have to worry about saving to meet your expenses”. According to SRK, this has always led him to focus on growing the pie instead of saving a piece of the small pie.

I assume this mentality of ‘saving money’ somehow manifests itself in us first generation startup entrepreneurs which causes us to leverage ‘jugaad’ and feel good about it. 

It might be better instead to budget for various cost heads and get professionals to do it.

Thoughts ?