SecondCityCEO by Seth Kravitz

It seems like common sense to save money when you run a company, but I am always shocked when I walk into a fellow internet company’s office and see solid hardwood desks, Aeron chairs, brand new computers with 24′ LCD’s, plasma TV’s hanging on the walls displaying nothing more then company slogans, and more art on the walls than most small museums. After five minutes walking around I start to wonder does anyone make money around here or do they just spend it.

What amazes me even more is that many of these companies run off of VC funding. If I was an investor in a VC and found out one of my companies was buying $1000 chairs and stocking the kitchen with 20 cases of Red Bull and organic food, I would be in that CEO’s office so fast his head would spin.

My partner, Lev, and I have gotten by very frugally from day one. We started off by working out of his basement off of three grey plastic folding tables we purchased at Home Depot. We used the family internet connection and ran an Ethernet cable out the bedroom window on the second floor down in through a basement window and down into a router I picked up from a local used computer store. He ran a food cart business on the side serving the Ohio State University area and stocked everything in his basement. So, lunches consisted of walking over to the corner of the room, opening a box of potato chips and Kit Kats and subsisting off of that. We did $252,000 in revenue the first year in business and the only reason we turned a profit was because of how frugal we were.

Now we aren’t working out of a basement anymore obviously. We occupy about 8,000 sq ft of office space combined between our Columbus and Chicago offices and employ nearly 45 people. However, in many ways we are still as frugal as we were then and that is certainly one of the biggest factors in our success and survival for that matter. We believe in putting all available funds into paying our people and building our services. That’s where the money should go. If I asked one of our employees, “Would you rather have a solid mahogany desk or a larger paycheck?” Take a wild guess what their answer is going to be.

Now, offices are certainly not the only place that companies waste money. However, the mentality that drove us to keep our office expenses low overflows into many of the other services we pay for. We are always analyzing the services we pay for and figuring out whether or not we can do it in-house ourselves or if we can find a better but cheaper alternative with a different company. If we pay $5.00 for something, we demand to know why we can’t pay $4.50 for it and we will search out alternatives.

In my eyes companies serve only 3 purposes:

1. Delivering the best product possible for the client and insuring their 100% satisfaction.
2. Support your employees and their families as much as possible and your surrounding community as an extension of that.
3. Generate profit. I could care less when I hear a big revenue number. I only want to know how much you actually make.

I’m sorry, but I don’t see art, over priced outsourced services, Aeron chairs, and $2000 desks having anything to do with 1-3.

Keep it frugal and your business stands the best chances possible to maintain profitability and grow.