Episode 5: Spending
When it comes to how entrepreneurs spend money, Doug and Glenn have seen it all – from capital efficient founders to spendthrifts. In this episode, inspiration comes in the stories of a man named Leonard from Saskatchewan, and a woman name Alli from California, both of whom were especially smart with their money as they started their businesses.
Transcript
Glenn Suart 0:00
Carefully consider what you’re spending your money on, and try to be productive with it. Yeah, it’s easy to spend money on marketing and getting flashy new business cards – all that kind of stuff, for sure. But make sure that when you’re thinking about those dollars, you’ve got enough dollars that are earning their money back.
Doug Ross 0:29
Welcome to Conversations on Startups, a podcast brought to you by Douglas Ross, author of the book Spark Click Go: How to Bring Your Creative Business Idea to Life, and Glenn Suart of Today’s Great Idea, a radio series featuring over 300 origin stories of businesses, brands and inventions that have changed the culture. Welcome to today’s conversation.
We are going to focus the discussion today on spending. So we’re going to talk about how to use your money wisely. This is something of wide interest among startup enthusiast unless you’ve gone out raised a bunch of money, even after that it’s an important topic. So Glen, what are your thoughts on spending? And what are some do’s and don’ts? And what’s your experience been?
Glenn Suart 1:20
Well, you know, Doug, here in Canada, is pretty much like, you know, for you in the US, the attitude of startups is you never have enough money. And so you have to be good at spending. In some cases, people have too much money, which is more of a curse than a blessing, because you may not make the good decisions that you have to. I like having just a little bit not enough money, because it forces you to really think about what you’re going to spend your money on every day. But at the same time, you got to have enough to do what you need to do. That’s where I come from on spending. Does that make sense to you?
Doug Ross 1:58
Yeah, it does. And it makes me think of a kind of a wonky term – being capital efficient as a term that I’ve heard applied to this. I’m working with some folks out of Calgary speaking of Canada, I have mentioned these guys to you before – they’re developing stents. This is for brain surgery and in stroke and other similar situations, and they have been called by some of the investors that have been approached them – they’ve been described as capital efficient. So we can get into more about how they got there, but I just wanted to introduce that term, because yeah, absolutely, you’ve got to watch every dollar, and you’ve got to advance your progress as an early stage venture.
Glenn Suart 2:44
100 percent. You gotta be efficient in what you’re doing is, as I heard you say, and invariably, spending is also, you know, how do you build a business with a low amount of money? Because you got to be careful what you do. I got a story about a Canadian company here. We’ll see if you can guess who it is Doug. Okay. And they’ve got stories right across the country. But you know, it started by a guy named Leonard, who grew up in Saskatchewan, he lived on a farm. And you know, with farmers who shared all their tools. And after graduation and getting several degrees, Leonard ended up with a great job working for the civil service, the government in Ottawa. And it wasn’t great in a way for a Leonard because by the age of 40, all his friends were thinking about how many years until retirement, and Leonard want to do other things. So in his spare time, he tinkered around and he decided to build a cast iron stove to heat the shed on his farm, a stove, you know, you’ve had the old days. And then he thought, other people might like it, so he spent a very little amount of money to advertise that, you know, he’s got these cast iron stoves, and he did it by mail order – you can tell this is like, you know, 40 years ago. And pretty soon he was selling enough of these stoves by mail order that he quit his job full time. So he didn’t invest a huge amount of money into it, but it worked for him. And then, you know, he added some other tools and gadgets, you know, that he wanted, but he couldn’t find elsewhere. And one day, he might end up with 15 employees. And he was so wrong, because today, he has 20 retail locations across the country in Canada, annual sales, over $150 million, 850 employees. And those employees get to share 25% of the profits, which is a kind of interesting performance management thing, and it’s named after him and what he loved to sell. Lee for Leonard – Valley tools, a big company in Canada. If you need anything tool wise, you go there. But it all started because he didn’t go out and spend a crazy amount of money trying to create a business. He did what he loved. And he tested it out using a small amount of money, carefully spending it on mail order to get interest in orders, and built it from there. And as the money came in, he grew the business.
Nice. So he can tested his business model. And he tested whether there was demand for that particular that first product that he came up with. That’s an impressive, impressive story, a kind of bootstrapping and being very smart. You know, when we talked about this spending smart, it’s really about where can you spend a small amount of money to get a big impact?
Bridget 5:23
You’re listening to conversations on startups with Doug and Glenn, thanks for joining us. Let’s get back to the show.
Doug Ross 5:32
So you know, I have a story as well, I’m happy to share. I’ve got a few small ones, but I’ll share this one with you. It’s kind of, what you said, reminded me of this story that I tell in my book. We didn’t reintroduce ourselves. But anyway, in my book, SPARK CLICK GO, I tell this story, too. And this is a woman who had a hair styling background, and she had worked, she had gone to college, that kind of thing, but also worked in some of the nicer salons around some named individuals in New York City, and like this, but found herself with her young family husband, and now with some young kids on the other coast of the US out in LA. And she’s got these young kids, but she still had this desire to be working in the hairstyling area, so she thought, “hmm, I wonder if there would be other people out there – women like myself – that would be interested in having an at home service. I could come in, blow dry their hair, give them a styling, obviously spend some time with them. You have that one on one connection. I wonder if there would be interest for this and decided that okay, I’m going to spend no money actually Glenn, here just posting on social media.” This is to a group at the time I think it had 5000 followers, other young mothers. “Would you like to have your hair blow dried and styled in your house, 40 bucks?” What do you think, guess what, she got lots of interest. She got in her car with her blow dryer, out she went, this thing worked extremely well, or her only cost really was gas, and what she really realized, though – that there was nothing in between full full service salons which are very expensive for women’s services, as you know, and then the sort of the really low end cut type of place. And if you went into the full service salons, they didn’t want to just give you a blow dry. That’s not what they were into it. They sort of looked the other way. So she created this other space, decided that driving was a waste of money and created a brick and mortar store. She had at one point 3000 stylists here in the United States, if I’m not mistaken – she’s looking to go elsewhere. It’s called Dry Bar, and the person’s name is, Ali Webb. So another story of small investments in this sort of prototype service, test whether there’s demand and go from there.
Glenn Suart 8:00
So that makes logical sense. You you work it up. I think we told / I told the story about one of my business partners, Sean, he wanted to bring coolers into Canada, and he decided to – from overseas -and he bought 25, and he had them shipped over here. And he sold them promptly within a short period of time, he thought oh, “I’ll do that again.” He ordered a bigger he ordered 200 and he thought, “well, I’ll take me a while to sell those,” and he sold those in three weeks. And it was like wow, there is a business here. And so by doing those little things, not assuming he was you know, be successful, but testing the waters spending relatively little he was able to prove out that there was a business and then he’s also good at sales. So that made it easier for him to help us by having purchase orders from major retailers after that that made it easier to start the business. But by spending a little bit of money at the beginning not mortgaging your house and, you know, going crazy and hope you know hoping that it’s going to work but spend in the right spots to get some return, I think you said it right from the beginning – a high level of return.
Doug Ross 9:06
Right and we’re talking mostly these examples at the beginning when you’re not sure there’s a business. What about when you start to move along and you’re starting to get some customers and things like that, any thoughts as to where folks should focus their dollars when you’re starting to grow?
Glenn Suart 9:31
That’s a good question too. It depends on the business and what you’re doing but I’m of the view after seeing it, you know, multiple times is you’ve really got to understand your numbers and, given the using the cooler example again, we get coolers from overseas we have to add you know we there already b oxed, they’re already material we have to move into the warehouse, gotta move them out. We have purposely spend very little on labor because we want to be efficient and not not touching the boxes too many times. So we spend, we spend on coordinating the boxes, having a third party who’s really good at it, sorting them for us, and it helps us be more efficient on the operational side. So we want to lower our costs by operating better. So if you’re going to spend money, spend the money where you’re going to reduce your your time and effort, especially for manpower, automate. You know, we have computer systems to track our unit. That helps, we have to spend money up front to do that.
Doug Ross 10:33
type of thing. When it comes to automation. There are a lot of software as a service types of automation that you can consider. And you can spend small amounts to start with these systems in many cases. First of all, you’re not necessarily having to download them onto your own servers, like you used to have to or on every employee’s desk, desktop computer. All you need is a subscription. So one that I’m thinking of if you’re in the restaurant business is called Toast, and they have everything from point-of-sale terminals so you can go out there into the audience or into the diners and they can pay as they’ve been doing in Canada for years, but it’s been slow to catch on in the US for some reason. But it’s also got your payroll there, there, there’s inventory, there’s online ordering, there’s everything that you need and you can buy the pieces of hardware that you need, sort of as you go. It really, you know, I love that you mentioned automation, because I just don’t think there’s anything better in terms of timing to bring in automation in the form of the software, software, hardware sorts of things, someone out there somewhere, they just are so thrilled to be working on inventory management, so they built these systems, so take advantage of it.
Hey podcast listeners, we’re going to take a short break now. If you’re enjoying the show, feel free to invite your friends, remember to subscribe and if you want to help spread the word leave us a review on Apple podcasts or your favorite podcast app. Each episode of Conversations on Startups focuses on a single topic. If you want to comment on something you’ve heard on the podcast or suggest a topic for us to cover in a future episode, send an email to go@todaysgreatidea.com or douglas@sparkclickgo.com. Glenn and I appreciate you and hope you find our uncut and unrehearsed stories, perspectives and tips helpful. Speaking of helpful stuff, let’s pick up where we left off.
That system that you mentioned just now was that how expensive was that?
Glenn Suart 12:42
Oh, it was software [as a service]. It’s like 400 bucks a month? It’s nothing.
DOUG ROSS 12:47
Right, so you didn’t have to invest in new equipment or any of that sort of thing? It’s not hundreds of 1000s?
Glenn Suart 12:53
No, it depends on every your business and everything else. In our case, we’re doing something that is everybody / most businesses have some type of inventory they’ve got to manage, so it’s not like we’re reinventing the wheel and creating something new. The story of Shopify is also an interesting story, because it’s an Ottawa based company, an international in scope, one of the biggest value companies in Canada. And it started simply because the founder who was running a skateboard shop or a surfboard shop, I can’t remember, I used to skateboard, they couldn’t find the software that they wanted to use to run the website, so they created their own software and it worked better than most other things. And then they realized, hey, people kept coming up, can we use your software to do our business. That’s how Shopify started by creating a better software solution to help people manage their inventory, and it allows people to create new businesses for less / little bit of money. And so that, I guess is one of the lessons here we want to sort of end with, is carefully consider what you’re spending your money on, and try to be productive with it. Yeah, it’s easy to spend money on marketing and get flashy new business cards and all that kind of stuff, for sure. But do make sure that when you’re thinking about those dollars, you’ve got enough dollars that are doing they’re earning their money back as it were.
Doug Ross 14:13
Nice way to think of it versus spending money on, you know, a fancy office kind of thing, perks and things of this nature, some of those things just doesn’t make sense when you’re getting going. I totally agree with you on on that one, Glenn. Anything else in the not to spend money bucket before we wrap up?
Glenn Suart 14:33
It’s such a loaded question. There’s lots of things you shouldn’t spend money on. Think about it, from your point of view is if if even if you don’t have an investor, if you’re just doing it on your own, treated as some third party investor would. If you had to answer to an investor who was putting money in your business? How would you defend the decisions you make?
Doug Ross 14:33
Nice question.
Glenn Suart 14:34
And so you, you analyze that. I don’t need to spend that restaurant meal or I don’t need that extra large hotel room when I’m traveling. Those are the kinds of things you should add not to say you have to do everything sparse, but ask yourself, does it add value to the business when you make those decisions about spending.
Doug Ross 15:11
I like that.
Din 15:13
You’re listening to conversations on startups with Doug and Glenn. Thanks for joining us, let’s get back to the show.
Doug Ross 15:23
The only area that we haven’t really touched on is talent. And I would say this is one where you might want to spend money, for the right kinds of talent you may need money depends on how competitive the employment market is in your area, this might be essential. And this could be a good way to spend your money, especially if there’s a certain expertise there. Or a person has contacts that are really critical, something like that. This might not be the area to really reduce your spending and try and scrimp and get along in this particular area. It can leapfrog you.
Glenn Suart 16:00
That’s right, there’s a time to be frugal, and there’s a time to spend. You know, there’s time to spend on equipment as well. But I agree with your talent is one of the biggest things in helping grow your business, you need talent, you need people who are good, so spend your money. And it’s not, it’s more than money, spend your time and resources, attracting the right talent. Because money is only one aspect of the investment, some of the talent is looking for mentorship, and that’s something you can offer to them potentially. Or they’re looking for an environment where they have the tools to do what they need to do. You could spend a ton of money on the talent, but if they don’t have the right tools to do their business, they’re gonna get frustrated and leave, you’re not gonna have the results you want, so you got to make sure you’re spending stuff in the right way again, but you’re absolutely right. When it comes to good people, and not to say you have to choose the right people, is it a lot of people who make demand a higher investment, but they may not be able to deliver on what you’re doing, so you have to be careful. But nevertheless, spend the money spending is important. Understanding how you spend money is very, very important.
Next week, do we have anything planned? Or what would you like to tell you about next week?
Doug Ross 17:14
Well, let’s see. What have we talked about? And of course, it could be any week for our listener. They can of course, anytime they want.
Glenn Suart 17:22
Persistence, we’ve talked about talking about?
Doug Ross 17:25
Yeah, obviously spending today. What do we cover last time? I can’t recall.
Glenn Suart 17:32
We both we both have short term memory. And I think issues realistically, I think one thing for a future episode we should talk about is passion, not persistence, but passion. What drives you to do what you do? Why, you know, lots of businesses and inventions and brands have come about, because someone was passionate enough about the subject to do something.
Doug Ross 17:58
Yeah, that’s a good topic.
Glenn Suart 18:00
Yeah, So realistically, you want to follow your passions, and sometimes you can create something. One story I’ll just share briefly, because I know we’ll talk about other stories, is that there was this guy John who was in England, and he he loved military uniforms and he has had a passionate hobby about designing them and thinking about them. And it was fun for him. So much so that he got involved with a movie called The Charge of the Light Brigade back in the 60s. It was he did the did the uniforms, it was kind of a fun thing for him to do and he enjoyed it. And that was it. And then about 15 years later, he got a call from a director who wanted him to do – because of The Charge of the Light Brigade – wanted him to do the uniforms for a movie he was making. And John did not think much of the uniforms. He created these uniforms for this movie, but he thought this is a movie that’s gonna go nowhere. Anyway, he did it. And he won an Oscar on his first movie for the, the costume design, which is of course amazing. And it’s a small little film called Star Wars. So he didn’t think it was gonna go anywhere. But it’s all about his passion for getting his business at that point.
Doug Ross 19:07
That’s great. Yeah, Star Wars is a good one, because if you think about it, was it really different from some of those cheesy sci fi things out there? And a lot of cheesy characters and things like that. Oh, yeah, a lot of reasons it succeeded too. So I’m not surprised he was skeptical that this thing would go.
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