Business Management Styles
How Savers Differ From Investors and When Each Style is Appropriate
Understanding whether you're a saver or an investor can help you capitalize on your strengths and choose the right style for different stages of your business.
Business owners can typically be classified as either savers or investors.
Savers are notorious for pinching a penny; they have a knack for stretching money so it goes farther. Savers don’t spend on anything that isn’t absolutely essential, and look for bargains on everything, even buying second-hand if it makes sense. Getting them to pry open their checkbooks can be a real challenge because they’re driven to conserve money.
Investors see things differently. “It takes money to make money,” is their mantra. They’re not necessarily profligate with a buck, but when they see where spending a dollar can net a dollar and half, they’ll borrow the money to invest if they have to. They tend to see things over the longer term and they can calculate return on investment in their heads. Investors are value shoppers instead of price shoppers.
Which approach is better? Actually, each is appropriate in different circumstances. In a start-up environment, savers can get a business off the ground on a shoestring and keep it running in lean times. Investors, on the other hand, tend to be excellent at assessing capital needs and growing a business quickly.
Though must business owners exhibit a blend of both styles, everyone tends more toward one style or the other. Do you recognize which style you favor?
If you’re a saver, then you’re well suited to conserving your business and growing it slowly. Your risks include not having an emergency source of financial backup such as a bank line of credit, because you can’t justify the fees. Without capital in reserve, you may miss opportunities or be left scrambling in the event of an unexpected cash flow crunch.
As a saver, you may also be slow to react to new competition or changes in your market because of the expense involved in revamping the business. If sales fall, you’ll be tempted to spend less, which may fatally aggravate the problem.
If you’re an investor, then you’re well suited to sustaining a growing business. Your risks include stretching your resources too thin. You’ll always find things to invest in that stimulate growth and offer good ROI, but you can’t afford them all.
Investors can also tend to overly rely on debt to make business investments. If the payoff is less than expected, the debt service can strangle cash flow. Additional borrowing to make ends meet can lead to a death spiral.
To achieve the right balance between saving and investing, first identify what’s most important to you and your business. Is rapid growth critical to survival in your industry? Or do you prefer having a modestly growing company with lower risks?
Next, recognize whether you tend more toward saving or investing, and acknowledge your particular risks discussed earlier. When faced with a spending decision, instead of reacting instinctively based on your style, be your own devil’s advocate. If you’re style is too entrenched in your psyche to do that effectively, develop a relationship with someone you trust who can play devil’s advocate for you.
Remember, you will not always make the right decisions all the time. But if you can increase the odds in your favor by recognizing and adapting your style to your business situation, you can reduce your risks substantially.
