Spend It to Make It? No, I Don’t Think So…
Fellow Riskologist,
Ask almost any long-ago-established business person what it takes to make it, and you’ll get a number of answers. One cliché that’s sure to make an appearance is, “You have to spend money to make money.”
It’s not true! Don’t listen!
You do not have to spend money to make money. You don’t have to put your savings on the line or quit your job or do any of those grand gestures that look brave but are, in fact, foolhardy.
Every day, lots of smart people start their very small businesses without spending any money whatsoever.
More important, though, is that even as a little business becomes bigger, spending money will never be the only answer to a challenge you face. Any problem that can be solved with money can often also be solved with a bit of creative thinking.
- Need to launch a new product but don’t have the money? Pre-sell it!
- Overwhelmed by customer support and want to hire someone? Make your support process more efficient instead!
- Need a website developed but don’t have cash? Bust out the web design tutorials!
But let’s get back to “spending it to make it.” Yes, money can make a business grow faster, but only when it’s used properly. That’s called investing, and very little that new businesses spend their money on actually qualifies.
Spending and investing are very different concepts and getting them mixed up will lead any business to financial ruin. Think you won’t fall into the trap? If you don’t know the difference, think again!
Spending = Money used to provide comfort and convenience. It provides some sort of intangible value like happiness. Most important, it does not return more money! That’s fine for everyday life when properly moderated, but a death sentence for any business that needs to return cash to you (you know, so you can spend it).
Even worse: very smart people who know what reckless spending looks like in their personal lives happily justify it for their businesses. The old “spend it to make it” mantra is alive and well, and it runs bank accounts across the world to zero.
If this describes your current situation, fear not! All is not lost! Actually, fear a little—you’ve been a bit foolish, but you can recover.
Investing = Strategically spending on things that will produce more money than you spent. If you shift your perspective to investing in your business, you’ll soon find your bank account growing instead of shrinking. (And all the hair you lost from the stress will come back, your waistline will slim, and a genius supermodel will fall in love with you.)
But what is an investment? In the beginning, the definition is very simple: If it’s proven (proven!!!) to return more over time than it costs, it’s an investment. Spend away.
Everything else is a useless expense. Good investments for a new business include things like:
- Development costs for products you’ve proven you can sell.
- Books and training you actually read and put to use.
- An e-commerce website where customers can give you their money (and the very low cost to host it).
- Almost nothing else!
So, this is your new commandment as a struggling start-up:
Whenever you feel compelled to buy something “for your business,” ask yourself: “What is the real dollar value I can expect to earn by investing this money now?”
If you know the answer to that question, and it’s more than you’re spending, green light! If it’s less than you’re spending, red light!
And if you don’t know, then you are strictly forbidden from spending any money until you do!
Focus on investing in your business and acquiring assets over time—not liabilities that make you feel professional but only get in the way. Besides, looking professional—especially when you’re not—isn’t really much fun.
Yours in risk-taking,
Founder, Riskology.co