An eye on costs sets the tone for success

First published in the Financial Times on the 12th March 2013.

A founder with a sense of value is able to build a more resilient corporate culture

One of the most outstanding entrepreneurs I have ever worked with has one particular trait that I think is the secret of his success. It is not his ability to sell, motivate staff, innovate or think strategically. It is a rather more mundane tendency – but in this climate, an incredibly important one: his sense of thrift.

Frugality has never really been in fashion, but now more than ever it is needed. A founder with a profound sense of value is able to build a more resilient corporate culture. Ingvar Kamprad has become one of the wealthiest men ever born by making Ikea the largest and cheapest retailer of furniture in history. It sells home furnishings at prices no rival can match because it is managed with a spirit of thrift. Mr Kamprad practices what he preaches. He always flies economy-class, drives a 15-year-old Volvo, and says: “I am a bit tight with money, a sort of Swedish Scotsman. But so what? If I start to acquire luxurious things then this will only incite others to follow suit.”

One food entrepreneur who recently failed to get it right is John Schnatter, founder of the Papa John’s Pizza chain. He has complained in public about the burden of implementing US President Barack Obama’s healthcare law for staff, and suggested franchisees would cut employee hours or increase prices. Meanwhile, he has company stock worth more than $300m and an extravagant mansion in Kentucky, and yet has always promoted himself as an everyday guy in advertisements. Over recent months he has taken heavy criticism from bloggers to comedians, and the company’s reputation has suffered. Now he has hired a powerful PR man to try to rebuild his – and the company’s – image.

The characteristic that I admire in a business builder is not meanness but prudence and cost-consciousness. Such entrepreneurs tend to have a healthy sense of realism: they know just how hard it is for most companies to make sustainable profits. Of course, every business needs much more than a neurotic focus on the expense of everything – there must also be quality, and service, and all the other features possessed by market leaders.

I’m impressed by Tim Martin, the pub king who runs JD Wetherspoon. His outlets are ubiquitous, democratic and ferociously competitive. I’m sure he runs a tight ship. And having travelled with him on public transport, I can confirm he really does carry his papers in a plastic supermarket bag during the two days a week he spends visiting his bars. Moreover, he has not been afraid to stand up and attack excessive government taxes levied on the licensed trade. Yet he has never attracted any of the hostility suffered by Mr Schnatter – even though his shareholding is worth roughly as much.

Thrift fits with the times in another way: it is anti-waste. So entrepreneurs can burnish their environmental credentials while exhorting their team to save money when it comes to matters such as utility bills, packaging or surplus goods. Recycling can become a win-win activity.

Chuck Feeney, co-founder of Duty Free Shoppers, is another frugal entrepreneur who confounds the typical impression of a billionaire. He is committed to giving away his fortune to good causes in his lifetime and has already distributed more than $5bn. He flies coach-class, wears a plastic watch and has rarely even owned a car. As he says: “I’m always the first guy to ask how much is that or what does it cost?”

Businesses – and individuals – that are extravagant and flashy tend to get into trouble sooner or later. I once worked with a talented restaurateur who married a fabulously wealthy woman.  Unfortunately, he developed all sorts of bad habits and ended up estranged from his family and in jail. If he had been more abstemious, his tragic fall from grace would never have happened.

While entrepreneurs can be extremists in some elements of their lives – such as being obsessed with the customer experience – a degree of restraint is a good idea when it comes to spending. It sets a tone and an example that managers and staff tend to follow.