Business Lessons from Heidi Montag and Spencer Pratt

This is not a post about Heidi Montag and Spencer Pratt. I mean, it sort of is, except that I don’t actually know who they are and haven’t ever seen them except on magazine covers in the grocery store.

This is a post about running a sustainable business. No, really.

When I started my company, I knew nearly nothing about running one. And it turns out, there’s quite a bit to running a company beyond knowing a lot about whatever it is you’re focused on building. I’ve learned the differences between an S-Corp and a C-Corp, what NNN and TI mean, what E&O stands for, and that Seattle’s revenue-based business taxes are, well, kind of a bummer.

I’m still learning. A lot.

One thing I’ve learned is that it’s not enough to provide something that people want enough to pay you for. How you manage cash flow and expenses is at least as important. You have to think carefully about the ROI of every expense. How will the company benefit? Is this something the company needs right now or will waiting a bit be just as beneficial? You have to balance the need to make the right investments and have the right resources with the need to not drain the bank account dry with lots of random expenses you hope will pay off down the line.

You worry not only about spending money, but about not spending money. What if that one expense is what makes all the difference to move the company forward?

Which brings me to Heidi Montag and Spencer Pratt (apparently known colloquially as “Speidi” by their closest, er, fans). I came across a fairly fascinating article on the Daily Beast about the rise and fall of their fame. Despite being on the covers of all of those magazines in the grocery store, they are now, according to this article, broke and living in Spencer’s parents’ beach house (a pretty good state of being broke, I guess, if you can get it).

Where did all the money go, the interviewer wanted to know.

Here’s what’s interesting. The money flowed out as soon as it came in (from appearances and the like), but not because they were partying it up, renting private jets to take them to Paris for dinner, throwing hundred dollar bills out open windows just to watch them flutter in the breeze. No, they spent the money on crazy props (plastic surgery, mystical crystals, a monster truck)  that they thought were investments in their careers.  They believed these expenses were necessary in order to sustain their fame. Without all of this spending, they thought, the fame would dry up and so would the money.

Only the fame dried up anyway. The article goes into why that might be and how reality star fame perhaps is different from fame based on true accomplishment of some kind, but I’m more interested in the money. As the article notes:

 “I thought I was investing in myself and my brand. Like Kim.” As in Kardashian, who came up often during the interview. Heidi continued: “When she buys these clothes, she’s investing in herself. Because she is a big brand and is likeable. I thought I had that potential.

How do you know if you’re investing in something that has potential or throwing away your money completely? Or, as is the more likely and more painful situation for entrepreneurs, spending on the wrong things or at the wrong times?

Doug Edwards’ new book I’m Feeling Lucky: the Confessions of Google Employee Number 59 has a section about Sergey and Larry’s guiding principles in the early days of Google. Efficiency. Frugality. Integrity. Doug recounts a story of an early business trip with Sergey to Italy.

“That seems kind of expensive,” Sergey said, looking at the hundred-dollar price for a cab from Malpensa airport to downtown in Milan in January 2003… “Maybe we should take the bus. It’s less than five Euros a person.” The bus? What? Were we college kids backpacking on spring break? Maybe we could just hitchhike into town. We compromised on the train, which ended up saving us fifty dollars.

It’s somewhat amazing that Larry and Sergey, with no experience running a company, and who brought tech, not business skills to the table, were thinking about things like keeping travel expenses low. And no doubt thinking about all of those details around sustaining a business contributed to their early success.

For the record, I would have paid for the cab. But probably not bought the monster truck.

 

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6 Comments

  1. profexorgeek August 6, 2011 at 4:48 am

    I’d have taken the train because savings + adventure = win ;)

  2. Larry Hosken August 6, 2011 at 3:46 pm

    1. Invent Monster Train

    2. ???

    3. Profit!

  3. Marc Perez August 9, 2011 at 1:03 pm

    I have a saying – “When money sees darkness, you see the light. When money sees the light, you see darkness.”
    When you have money deep inside the dark corners of your pocket, you are ready to buy everything you see, and as soon as the you take that money out and have none left, you can not look at anything else to buy.

    The other night on CNN I saw a report about a man who was jobless and is living off the food stamps program. His business was to make that 200$ last the month. He showed a list of items that he wasn’t allowed to purchase like a hot BBQ chicken. He had to purchase raw goods and cook it himself. He only bought items that were on special and that’s how e made that dollar stretch.

    In one of Donald Trumps book, he said that you should always haggle for a lower price and if you don’t get what you want at the price you want, then walk away. I’ve used this practice on everything, from restaurants, to car dealerships, to mortgage negotiations. Somebody somewhere will give in, because selling something for a little less, is better than losing the business completely. The 60$ a month I was able to save on my car payment, help me save up for a bigger down payment on the house.

    One time we went to a restaurant with my boss, and the food took so long to come, I mentioned it to the waiter and asked if he could do anything to compensate, and the owner of the place gave us a free shot. 5$ a shot times 6 is 30$! With the amount of time we went back afterwards, the owner made that 30$ 100 times over.

    Just as you mentioned in your book Marketing in the age of google, you have to do research. If you open up a super saving center selling everything at the lowest price in a dark shady ally where no one can see you, then don’t count on foot traffic to keep your store open.

    Talk to an accountant, and ask him what expense can you get a tax break or credit on. Spend as little as you can in the first years. When Google first started in Standford, and even when they moved to the bike shop in Alto Paolo, Page bought used hard drive. Even though would break every 3 days, it was cheaper then buying 1 new HD.

    My goal is to buy a luxurious item when I know the interest of the money I make can pay the monthly payments, until then, i’m counting my pennies.

    unless you are with a client. I never let a client pick up the tab at a restaurant or a bar. You don’t need to spend

  4. Dan Martin September 21, 2011 at 5:53 pm

    I love this post, I often find myself looking like the cheap guy among my friends after spending the last 7 years scrutinizing the efficiency of my investments. Through the hard years of starting a business you obsess over these details with a microscope, and it is very hard to come out of that mind set once things are a little bit more relaxed. I felt a bit like George Costanza from Seinfeld reluctantly going to SMX NY last week in hopes of expanding my SEO knowledge, but fearing the flushing of money. My wife insisted on the taxi while we were there, rather than follow my Sergey-ish desire to take the cheaper subway.

  5. Dino Dogan (@dinodogan) January 27, 2013 at 6:48 pm

    Hi Vanessa,

    I’m looking forward to meeting you at xPotomac and AFK. I’m speaking there as well :-)

    As for the topic of this post. It’s very near and dear to my heart, and I’ve read 59th Employee book, so I remember that story as well.

    Frugality is in my DNA, and when I was empowering a conference organizer to spend my money last year, I told her to divide expenses into perennials and perishables.

    A cab ride would definitely fall under perishable expense. Once the money is gone, it can never be redeemed in any way. So I would definitely classify it as perishable.

    However, we paid a dude to shoot video of our speakers, and that is content that can be used for many seasons. In other words, it’s perennial.

    So my rule is, splurge on perennials and get the best quality you can get for the most money you can spend, and save your money on perishables.

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