Solving problems with ideas before budgets
Money buys more of what a company already does. It rarely buys a different way of doing it.
Great companies don’t throw money at problems, they throw ideas at problems.
It sounds odd from a partner at Sequoia Capital, a firm whose whole business is supplying money. Yet venture investors see the pattern often enough. A company with a problem and a fresh round of funding tends to hire its way through it. A company with the same problem and no money has to think.
Take a support queue that keeps growing. The money answer is more support staff. The idea answer is to find out which screen generates half the tickets and change it. The first scales the cost along with the problem; the second makes the problem smaller. Or take slow sales: more salespeople and more advertising, or a clearer product that customers can understand without a salesperson at all.
There is a well-known airline story from the early 1970s. Southwest, short of cash, had to sell one of its four planes but wanted to keep its schedule. The answer was to turn planes around at the gate in about ten minutes, far faster than anyone else in the industry. The fast turnaround became one of the foundations of the airline’s cost advantage for decades. A bigger budget would simply have bought another plane and taught nothing.
Scarcity helps because it removes the easy option. Sequoia said as much to its portfolio companies in 2008, when it told founders that the good times were over and that cash would have to last. Many of the companies that came through that period learned habits that a flush year would never have taught them.
The line has limits. Some problems are capital problems. Building a data center, running a clinical trial, making hardware or stocking a warehouse all need money in large amounts, and no amount of cleverness replaces it. An idea for a cheaper chip still needs a fab. Once a company has found something that works, money is how it spreads, and refusing to spend at that point is a mistake of its own.
Frugality can also become an excuse. A founder who will not hire a second support person while customers wait days for an answer is not throwing ideas at the problem. He is avoiding it.
What the line really settles is the order of things. Try the idea first, because it is cheap and it may make the spending unnecessary. When the idea is proven and the constraint really is capacity, then spend, and spend on the thing the idea showed would work.