“Spend money like it’s your own” is a commonly used device to encourage prudent spending in startups. I disagree. I think it’s a particularly terrible way to think about money in a business. It makes financial decisions very emotional for both the CEO and for the employees.
How I spend my personal money is not the way a company spends money. I make emotional purchases another person might find ridiculous. I’ll buy a new dress when I own many or buy expensive chocolates on a day I’m feeling down. You might pay an insane amount for backstage passes to Coachella while I’d rather get tickets for an art show. Personal money involves making weird, irrational decisions such as buying a car, handbag, or home to demonstrate our status to other people. These types of decisions are incredibly emotional and tied to our individual values.
There is a fascinating field of study researching these ideas: economics and behavioral finance.
Within a startup, when you’re spending money and making financial decisions, you should be making them on the basis of their return to the company. A CEO should encourage their team to check for emotional and personal biases in their financial decision making. Financial decision-making should be kept as rational and unemotional as human beings are capable of doing.
It is ludicrous for a CEO to weigh the merits of a spending request with the question–
“Would you spend your own money on this?”
Because the answer will surely be–
“No, I wouldn’t buy $30,000 worth of laptops.”
Nor would you be likely to sign a multi-million dollar lease over ten years. These are not decisions you or I would make on a personal level. In the context of a company the metrics by which you should judge an expense are (1) will this help the company grow and (2) how much?
You must teach your team that when they spend money it is expected, in turn, to generate revenue. When an employee comes to you and says – “I think we should purchase these office supplies”, “We should pay (more) for this service”, or “We should up our online ad spend” – the employee should be justifying those choices only in terms of growing the business and increasing profits. A manager has to guide employees through these decisions to keep them rational.