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  • Writer's pictureBenjamin

๐—•๐—ฎ๐—น๐—ฎ๐—ป๐—ฐ๐—ถ๐—ป๐—ด ๐—–๐—ผ๐˜€๐˜๐˜€ ๐˜ƒ๐˜€. ๐—œ๐—ป๐˜ƒ๐—ฒ๐˜€๐˜๐—บ๐—ฒ๐—ป๐˜๐˜€

Updated: Feb 23



Cash flow is crucial, yet not all spending is the same. Some expenses are necessary to operate, while some are critical to your direction and value.

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How should you distinguish costs to run a business vs. investments to grow?

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Costs and Investments

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Expenses such as salaries, rent, utilities, and raw materials are unavoidable.

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These costs are essential for the day-to-day operations of the business. However, often costs are not tied to performance or outcomes.

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If costs rise without a corresponding short-term revenue increase or a determinable value increase, the business has problems.

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Spending on research, development, marketing, new equipment, or expanding into new markets are investments for longer-term benefits.

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These investments aim to grow the business and enhance its value.



Compare and Contract


The distinction between costs and investments is not always clear and depends on the context and the expected outcome.

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An example is employee training. It could be seen as a business cost or as an investment if meant for greater productivity, efficiency, and/or revenues.

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In this case, thinking about the ROI of training could improve its purpose.

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Decisions on costs and investments should be aligned with your financial health, market opportunity, and the competitive landscape.

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Some expenses may bring long-term gains, but what about short-term losses? Can your runway last, and will the investment be worthwhile?

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When faced with reducing expenses, you may be tempted to cut everything. However, if you can lower costs without completely eliminating them, you can maintain momentum and ramp up more easily when ready.



The End in Mind


At seven, my younger daughter won an award, โ€œBegin with the End in Mind.โ€ (At 14, she has the next ten years planned, so that award was spot on.)

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Cutting costs may improve your business depending on your current runway and planned exit. However, don't forgo all investments.

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In some cases, investing in growth may help you gain a competitive advantage, expand into new markets, and/or increase your valuation.

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For instance, when the customer acquisition cost results in a favorable lifetime value, you may take capital to capture more customers.

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If you desire capital, consider the tradeoffs involved and the expected return on investment regarding value, risk, ownership, and velocity.

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Every financial decision has tradeoffs. Some founders look at all expenses as barriers to success. Successful founders recognize and address the tradeoffs.ย 

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To grow steadily, you want to balance

carefully managing costs and

wisely choosing investments.

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This tightwire act bridges short-term runway and long-term success.

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Photo by Loic Leray who can be found here

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Our latest newsletter covers Customer Success and Decarb for Startups

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๐—ฆ๐—ฐ๐—ฎ๐—น๐—ฒ: ๐—ฅ๐—ฒ๐—ฎ๐—ฐ๐—ต ๐—ฌ๐—ผ๐˜‚๐—ฟ ๐—ฃ๐—ฒ๐—ฎ๐—ธย is a 500-page handbook with over 130 articles that ascend into topics like leadership, growth, sales, marketing, operations, finance, and teams.

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This post was written by me with AI editing.

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