There are two types of entrepreneurs that drive me absolutely crazy when it comes to money—the guy who always spends the least amount possible, and the guy who always buys the best. I’m somewhere in between—for what should be obvious reasons.
Some years ago I had a business partner who served as our director of technology; he’s a ridiculously intelligent guy, an incredibly competent coder, and was always up on the newest technology. Whenever we needed something to support the business (servers, network stuff, et cetra) he’d research it meticulously—then he’d buy the most expensive version of whatever it was we needed. For instance, instead of getting a simple, straight forward HD flat screen for customers to watch the digital products we created for them on, he bought the largest top-of-the-line 3D plasma television in the category.
Contrast that to another former business partner who is also very intelligent, competent, and researches everything. In his quest to always save money and be frugal, he often held the money with an iron fist, or would spend it on the cheapest thing (or wrong thing) he could find. For instance, we had a major construction project to rebuild a section of our building, and instead of buying the equipment and doing the work ourselves—he paid someone else because it was cheaper. The end product was no different than what we could have produced, except the funds were then gone and we didn’t have the kit we’d later need for other projects.
Both of these men have amazing skills sets and personal qualities that they brought to the business that contributed to our over all success, but they approached business from two perspectives that can ultimately cause harm if left unchecked. On the one hand, the guy who’s always buying the best often spent way more money than should be spent, whereas, the person who’s perpetually looking for a deal often cost us more in the long run because he wouldn’t properly invest in the first place. This is the mindset of abundance and scarcity at work, albeit, perhaps on slightly more extreme sides of the pendulum.
Abundance vs Scarcity
I first learned about these concepts in Stephen R. Covey‘s seminal work The 7 Habits of Highly Effective People. Later, I read about it again in Peter H. Diamandis‘ book on Abundance, which prompted this little bit of writing today. In the simplest terms, those who approach life from the abundance mindset always feel there’s plenty of pie to go around; those who approach life from the scarcity mindset try to hold onto as much of the pie as they can for themselves.
In the first example I gave you, my partner always believed you got what you paid for. If you skimped, you’d pay for it later down the line. However, that isn’t a universal truth and often he’d end up getting more than we needed. In that example, we never even used the 3D capability—so what was the point of paying extra for it? Likewise, the second example my partner was so tight with money that he almost couldn’t bare spending it at all—and so we really did often get exactly what he paid for. Crap.
Having read a couple books on this now, I actually don’t agree entirely with the concepts of abundance or scarcity. At first, I wanted to lean towards abundance because it is presented by self-help coaches as the better of the two. However, anything that’s idealistic is fraught with inherent risks and limitations. Allow me to elaborate.
Abundance thinkers are supposed to be people who always look for opportunities, invest in growth, and place high value on their time. Sounds good to me so far. Scarcity thinkers are supposed to be the kind of people who worry about the cost if they take action and pinch pennies—so they seldom do anything anyway or the decisions they make end up costing them more in the long run because they didn’t act or spent the money on the cheaper item or service. Also makes sense. But life just isn’t that black and white—ever. Well, almost never anyway.
The truth is, everything is scarce; there’s not an over abundance of everything, so pretending otherwise is retarded. Yes, I get that abundance thinkers are supposed to be people who count the costs of something and ask what it will cost if they don’t spend the money or take action (suggesting that scarcity thinkers don’t consider those realities). I get that abundance thinkers are supposed to be the kind of people who don’t hide their gifts, but share them and invest in things like courses to learn more. I’ve heard it all before. But is that really how it goes? In the extreme, abundance thinkers believe we can do anything and that there really is plenty to go around.
In real life, as opposed to the often hyperbolic world of self-help, there are limits. There’s only so much gold, only so much oil, and only so much talent available at any given time. It’s no doubt that we’re living in extraordinary times. In the West, even those at the poverty line, still have clean water, electricity, shelter, et cetra. This is not the case all over the world. So, right now Moore’s Law doesn’t apply to natural resources like minerals or water or even food—yet. Who knows, maybe we’ll end up with a replicator some day ala Star Trek that will make things easily available. Tea, Earl Grey.
Listen, I’ve heard the argument that the earth is a planet of water, but the technology isn’t yet cheap enough to pretend it’s unlimited. For me, you have to find a middle ground between the two with, perhaps, a leaning towards the abundance thinking mentality. Some things must be conserved. There are times when you don’t want to spend your cash, as a businessman. Yet, being cheap is not the answer.
What I’ve found is learning to value abundance thinking while living in reality. I want to be frugal; I want to make sure my dollar or pound or euro goes as far as possible, but not at the expense of quality and dependability. I don’t want my frugality to keep me from spending a few extra dollars if that spend will produce greater results. At the same time, I don’t want to be fast and lose with my cash either; I don’t always need the newest piece of kit, just the best for the job.
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