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One thing that I’ve learned over the years is that a key component in business success is the ability to suffer for longing than your competitors. It’s the reason why VC’s want founders to minimize their salaries and why prudent CEO’s of billion-dollar companies still care about pennies.
Everything that you do in your company is compounded over time, which is why the first years are so critical. Like the compound interest that Warren Buffett constantly talks about, those differences start to become more pronounced over time and the different between one founder suffering for years and another only for a month can become a critical component in dictating who succeeds.
But it get’s worse. The game of business doesn’t start when you found a company, it starts the moment that you’re born.
Let’s say that I’ve suffered for years, living on $1,000 per month and saving the rest. Meanwhile, my competitor spent every cent of his salary.
When we both come to start our companies, I have two years worth of expenses saved up. You see, through my suffering and foregoing of pleasure I’ve been able to create a bankroll.
Now it starts to compound because even if our companies are generating the same operating profit, my competitor needs to take a salary. Plus, he’s still got a car payment and a nice apartment, so maybe he needs $3,000 per month to get by.
Meanwhile, I can rely on my savings. Maybe I take $1,000 per month to cover my expenses or possibly even none, to begin with, to maximize reinvestment and therefore growth.
As a result, I’m able to invest thousands of dollars more than my competitor back into growing my company. We grow faster, our free cash flow increases at a greater rate and before we know it our paths start to diverge and we’re miles ahead of the competition.
I was reading some corporate reports the other day and I came across a great presidents letter by Mark Leonard, the president of Constellation Software. Despite being a billion dollar company, Mark refused to fly business class.
“I recently flew to the UK for business using an economy ticket. For those of you who have seen me (I’m 6’5”, and tip the non-metric scale at 280 lbs.) you know that this is a bit of a hardship. I can personally afford to fly business class, and I could probably justify having Constellation buy me a business class ticket, but I nearly always fly economy.
I do this because there are several hundred Constellation employees flying every week, and we expect them to fly economy when they are spending Constellation’s money. The implication that I hope you are drawing, is that the standard we use when we spend our shareholders’ money is even more stringent than that which we use when we are spending our own.”
Later on, he goes on to say that he’s going to start flying business class out of his own pocket because it’s become worthwhile as he ages.
For those who doubt this, I’ve also heard a story from a reliable source that claims that Mark fired one of his VP’s for flying business class and not reimbursing the difference to the company.
Perhaps this is a little extreme given that the company is insanely profitable, but maybe it’s not. It displays an inability to buy into the culture which is set from the top.
While there are exceptions to the benefit of suffering, namely if you’re able to raise large amounts of money, I think the logic is the same.
In my experience, albeit limited to only a handful of individuals, with 9-figure investors, they are incredibly cautious about spending. One has a rule to only fly business class if you need to work on the flight. Another advised a founder he was investing in to take only $2,000 per month while living in a very expensive city. While the other hasn’t fixed his refrigerator in 6-months because he didn’t think it was worth the cost while he was traveling.
The point is, being financially prudent and undergoing voluntary suffering for as long as possible can have a huge impact on your chances of success. Far, far, far more than I believe most of us would like to think. If you can out suffer your competition, often (but not always) you’ll be able to compound from there and start to break away from them very rapidly.
I believe that this is the number one reason why most local companies are still owner operated and make a limited profit, inevitably failing and leading to the depressing statistics on business owners that we see. The average owner founded the business with little savings and therefore was forced to take a salary from the company, stunting its growth. This means that they can’t employee any help and therefore become stuck as an owner/operator where they are unable to focus on growing the business, rather than working in it.
This isn’t to say that I believe everybody should wait until they have large cash savings to start a business. However, there are obviously some advantages which will compound if examined carefully, especially in the case of an owner who can allocate capital efficiently in high ROIC opportunities. Perhaps in the future, I’ll touch on why I think being a great capital allocator is the most important skill that you can learn.
@Kak @Vigilante @MidwestLandlord @amp0193 @MJ DeMarco
Everything that you do in your company is compounded over time, which is why the first years are so critical. Like the compound interest that Warren Buffett constantly talks about, those differences start to become more pronounced over time and the different between one founder suffering for years and another only for a month can become a critical component in dictating who succeeds.
But it get’s worse. The game of business doesn’t start when you found a company, it starts the moment that you’re born.
Let’s say that I’ve suffered for years, living on $1,000 per month and saving the rest. Meanwhile, my competitor spent every cent of his salary.
When we both come to start our companies, I have two years worth of expenses saved up. You see, through my suffering and foregoing of pleasure I’ve been able to create a bankroll.
Now it starts to compound because even if our companies are generating the same operating profit, my competitor needs to take a salary. Plus, he’s still got a car payment and a nice apartment, so maybe he needs $3,000 per month to get by.
Meanwhile, I can rely on my savings. Maybe I take $1,000 per month to cover my expenses or possibly even none, to begin with, to maximize reinvestment and therefore growth.
As a result, I’m able to invest thousands of dollars more than my competitor back into growing my company. We grow faster, our free cash flow increases at a greater rate and before we know it our paths start to diverge and we’re miles ahead of the competition.
I was reading some corporate reports the other day and I came across a great presidents letter by Mark Leonard, the president of Constellation Software. Despite being a billion dollar company, Mark refused to fly business class.
“I recently flew to the UK for business using an economy ticket. For those of you who have seen me (I’m 6’5”, and tip the non-metric scale at 280 lbs.) you know that this is a bit of a hardship. I can personally afford to fly business class, and I could probably justify having Constellation buy me a business class ticket, but I nearly always fly economy.
I do this because there are several hundred Constellation employees flying every week, and we expect them to fly economy when they are spending Constellation’s money. The implication that I hope you are drawing, is that the standard we use when we spend our shareholders’ money is even more stringent than that which we use when we are spending our own.”
Later on, he goes on to say that he’s going to start flying business class out of his own pocket because it’s become worthwhile as he ages.
For those who doubt this, I’ve also heard a story from a reliable source that claims that Mark fired one of his VP’s for flying business class and not reimbursing the difference to the company.
Perhaps this is a little extreme given that the company is insanely profitable, but maybe it’s not. It displays an inability to buy into the culture which is set from the top.
While there are exceptions to the benefit of suffering, namely if you’re able to raise large amounts of money, I think the logic is the same.
In my experience, albeit limited to only a handful of individuals, with 9-figure investors, they are incredibly cautious about spending. One has a rule to only fly business class if you need to work on the flight. Another advised a founder he was investing in to take only $2,000 per month while living in a very expensive city. While the other hasn’t fixed his refrigerator in 6-months because he didn’t think it was worth the cost while he was traveling.
The point is, being financially prudent and undergoing voluntary suffering for as long as possible can have a huge impact on your chances of success. Far, far, far more than I believe most of us would like to think. If you can out suffer your competition, often (but not always) you’ll be able to compound from there and start to break away from them very rapidly.
I believe that this is the number one reason why most local companies are still owner operated and make a limited profit, inevitably failing and leading to the depressing statistics on business owners that we see. The average owner founded the business with little savings and therefore was forced to take a salary from the company, stunting its growth. This means that they can’t employee any help and therefore become stuck as an owner/operator where they are unable to focus on growing the business, rather than working in it.
This isn’t to say that I believe everybody should wait until they have large cash savings to start a business. However, there are obviously some advantages which will compound if examined carefully, especially in the case of an owner who can allocate capital efficiently in high ROIC opportunities. Perhaps in the future, I’ll touch on why I think being a great capital allocator is the most important skill that you can learn.
@Kak @Vigilante @MidwestLandlord @amp0193 @MJ DeMarco
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