Sharat Potharaju is the cofounder and CEO of Beaconstac, whose vision is to enable digital connection with every physical object and place.
The word “frugal” often gets a bad rap, and frugal people are often maligned and considered miserly or parsimonious. But in certain scenarios, we shouldn’t define frugal as “cheap” but rather as an approach to investing and cutting costs. I believe a frugal attitude is required for CEOs running their companies sustainably and cost-effectively—both necessities in today’s world. It’s not about doing more with less but doing better with less.
Founders often zero in their focus on short-term profits, leading them to make decisions jeopardizing their company’s long-term health. When faced with inevitable obstacles, like a turbulent economy, quickly evolving customer needs, security concerns or a siloed organizational structure, companies can struggle to keep their heads above water.
While CEOs should lead the charge in building that cash runway, they face a conundrum of competing priorities: business models designed with a “bigger is better,” not a “deliver more with less” approach and cost-conscious clients expecting affordable solutions.
We can address this dilemma by adapting our mindset to embrace frugality and adopting these three strategies for building a long (cash) runway.
Frugality supports a forward-thinking approach.
A frugal CEO embraces a forward-thinking approach and proceeds methodically and cautiously when determining when—and how much—to spend. For example, low interest rates now can tempt even the most cautious spenders to open their wallets wide—a short-sighted move, indeed. After all, interest rates don’t stay low forever. The Fed has raised interest rates 10 times between March 2022 and July 2023, totaling five percentage points. Imagine the size of payments now, with much higher interest rates. Instead, I recommend startups build products that generate business and cash flow now while working on those million-dollar ideas in the background.
Frugality isn’t a mindset for only the leaders to adopt, either. It’s imperative that they drive this attitude deeply into their company’s culture. Everyone, from the top down, should appreciate the value of taking a frugal approach. And part of that appreciation comes from recognizing that being frugal doesn’t mean never spending money—it means spending money on the right things.
A 2023 study based on a sample of 1,046 CEOs concluded that frugal CEOs are more likely to lead their companies to higher profits because they spend carefully and invest intentionally in the right areas. These CEOs are also more likely to survive a financial crisis because they prioritize building a cushion to help weather difficult times.
Shareholders benefit from a more economical approach to spending, too. Prudent CEOs are more likely to invest in long-term growth opportunities and realize more significant gains in their shareholder value.
Establish transparency and accountability with yourself and your counterparts.
I have a record of every dime my company has spent in the last 10 years. This level of transparency is crucial because it allows my partner and the rest of our leadership team to make informed decisions about the business’s future. You must instrument the spending because you can’t—and won’t—prioritize what you don’t measure.
Another misconception: A cash focus isn’t just about keeping expenses low but also maintaining a strong revenue focus. Most companies traditionally rely on monthly, quarterly and annual reports to see their cash flows, but do those reports help predict what may happen in the future? No.
Cash flow forecasting, however, helps to establish a cash-focused culture and create a more solid cash position for companies. Companies can use this strategy to gain a much more accurate picture of past and current cash situations and help predict future needs, informing planning and business decisions. And it allows everyone to identify opportunities to save or reallocate budgets based on need.
But you cannot—and should not—keep this information to just the finance team and CEO. I recommend sharing it with the entire leadership team so everyone is on the same page.
Accept that not everything will come easily.
We’re familiar with the expression that to win a war sometimes requires losing a battle, right? This idiom holds true with companies, too. Sometimes, a new company must forgo products that aren’t resonating with its customers. In our early years as entrepreneurs, in order to create the successful business we have today, my co-founder and I had to back-burner projects we were incredibly passionate about.
And that’s okay. Some products we revisited once our company was more stable. Others remain in the deep freeze; perhaps we’ll revisit them one day. To scale responsibly and successfully requires focusing on pairing growth with staying cash flow-positive rather than adopting a growth-at-all-costs blueprint.
Depending on your business model, products and services, you can use different game plans to ensure your company remains cash-flow positive, like:
• Offering discounted annual plans to collect cash upfront.
• Opting for a net 30-day collection policy.
• Focusing on ideal customer profiles that don’t bleed you dry.
• Managing inventory and business operations effectively.
• Maintaining that buffer or long cash runway.
• Taking advantage of higher interest rates (like now) by leveraging high-yield business savings accounts.
In addition to enabling CEOs to build a long cash runway, championing a frugal attitude aligns with growth strategies designed to increase business value, create meaningful products and deliver what consumers value the most: affordability, quality, simplicity and sustainability.
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