Entrepreneurship is often about being scrappy and making more out of less. While the ability to bootstrap can be very handy for a business owner, having the frugality gene (aka being el cheapo) can be very detrimental to your business.
You get what you pay for. Amidst the benefits of cost savings tactics like hiring cheap staff or service providers, you often really get what you pay for. The skills of an intern may not produce the desired results. Hiring an inexpensive attorney may costs you dearly in the form of contracts that come back to haunt you, unnecessary litigation and more fees down the road. Cheap materials in your retail store may need to be replaced or even cause a business closure. It can be greatly to your benefit to pay to get the job done well (not to mention getting it done “the first time”).
The hidden cost of cheap. Pricing of service providers can reflect experience, which means that you may be paying less by the hour, but you may be paying more in that it takes the inexperienced provider longer to finish a task or that the task is only partially done and needs to be redone. Being cheap may mean more of your time involved supervising or dealing with an issue, which takes time away from higher value tasks that you have in your business.
Moreover, high value service providers may also bring extras to the table, such as connections or customers that you can leverage. Being cheap can cost you in a variety of ways.
Cheap doesn’t fuel growth. Not making an investment in your business is like not providing a growing plant water and sunshine. There are only so many ways for a company to grow, and being willing to invest in resources, working capital, marketing and/or people is going to be required to get to the next level. There is only so much growth any company can attain without having to invest. Plus, a lack of innovation in virtually any industry can leave you trailing behind the competition. If you approach investment as a cheapskate, don’t be surprised if you are in exactly the same place- or even left behind- several years from now.
So, the next time you are evaluating an investment, think about whether you are being penny-wise and pound foolish in your business.