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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