I’m sure that you have been reading a lot of articles lately about how people in general are acting a whole lot more frugal than they ever have before in their personal lives. I read that the savings rate for 2009 is now approaching 5% when just a few short years ago it was negative. This is a huge change in behavior and if it lasts and doesn’t revert immediately once things start getting better there will be long term impacts to our consumer driven economy. Now we are starting to see studies that show that if people focus too much on saving money and too little on enjoying some (it doesn’t have to be a lot) of it that they are more likely to be unhappy or even fall into depression.
In the world of small startup companies there also is a lot of creative frugality happening. I think the question remains are you being frugal or just plain cheap? There is a huge difference in the morale costs. Workplace morale is pretty low right now if you believe all of those articles about people wishing they had different jobs and there are a lot of smart ways to improve.
In general I think that most people understand the need to freeze salaries or lower them in order to keep a company in business in this environment. This behavior is smart business sense and it is frugal. That said, neglecting to promote and give raises to people who clearly have demonstrated that they are performing at a higher level than their current position is cheap. Not rewarding someone who is clearly going above and beyond is plain stupid. This is not a person that you want to have leave the company. Giving a promotion to a handful of people isn’t nearly as costly as finding the budget for a raise pool for the entire company.
A company also should celebrate significant achievements. There are a lot of simple ways to do this. Ostentatious displays are out – no dinner cruises for 150, no cross country golf outings. How about a pizza lunch? Nerf weapons for everyone? (just be careful – you can crack an LCD monitor with a poorly aimed nerf gun!) A beer bash on a Friday afternoon? Even just cupcakes or ice cream? You don’t have to spend a lot of money to say thank you as long as you make it fun. Don’t save so much money that you can’t have fun.
I’m also in favor of free coffee, sodas, and a supply of snacks. Yes, this isn’t cheap, BUT it is very much appreciated when people are working long hours and sometimes overnight. I’m sure there have been times when you are sitting at your desk and you need to stay and get some work done but you are so hungry that you can’t think. What happens? If you’re like most people you’ll leave to get a meal, and most times you won’t return to finish what you were working on. If you could grab a piece of fruit or a cheese stick or a cookie to get through you surely would. People care about these types of things. I’ve heard people say that they would look for a new job if we got rid of snacks. There is also a lot of anecdotal evidence that getting rid of cookies or sodas really causes a pretty steep morale hit. Go figure.
Places where you can cut costs – facilities. If you are looking for office space right now you can get quite a deal. You also don’t have to be in the best high rent place you can find. Fancy digs are out. I remember being in a startup in a former motorcycle garage. The cubes were old and tiny. We were packed on top of each other like sardines… BUT the amount of energy in that place and the desire to succeed was palpable. People enjoyed working there and the circumstances just helped cement the team. Nice offices only go so far, and when times are tough they can actually sap productivity and energy because they are an embarrassing display.
If you have the cash right now, it is a good time to overhaul your infrastructure. Vendors are looking to make deals and if you have the money or the good credit to upgrade, now is the time. There are other ways to save money – and making your employees more efficient is one of them. If you use a lot of computing power – make sure your key performers aren’t running on 5 year old technology. Cobbling together ancient equipment that is obsolete and out of warranty is a dangerous game. The cost to recover critical data in case of failure is likely higher than the cost of fixing the problem in advance.
Just remember, being frugal isn’t being cheap. If your employees understand the financial situation of the company they will be frugal with your money too.
