Virtue:
Thrift
Other names:
Sparingness, contentment
Sparingness, contentment
Definition:
Being frugal, being content with what you have
Advice:
Empirical Research:
Case examples:
Gifts of the Holy Spirit
Further reading:
Vices opposed:
Case Study 1
ReplyDeleteRobert Luddy is president of CaptiveAir in Raleigh, North Carolina, and author of Entrepreneurial Life: The Path from Startup to Market Leader. From an early age, he learned to practice the virtue of contentment, cultivating habits of thrift and simplicity that would serve him well in the business world.
"People tend to be either savers or spenders, often based on the financial concepts they learned within their families. When I was growing up, money was always in short supply and the list of needs was long. Although my dad made a decent salary as an engineer, he had ten mouths to feed and often had to decide which bills to pay.
"While at times my siblings and I felt somewhat deprived, we overcame those feelings by working hard and earning and saving our own money. I would not trade my early experiences with monetary strain for anything; my parents taught me the frugality that enabled me to save my way to personal financial comfort. Many folks ask me why I don’t spend more money on myself, but I merely respond that my avocations are my fulfillment.
"Given today’s economic climate, lean operations are a necessity, but I have long practiced austerity, due in large part to my childhood experiences. CaptiveAire’s sales per employee are tracked annually as a measure of efficiency and viability in the market. Due to our resourcefulness, we have one of the best rates in the HVAC industry. It takes ingenuity to remain lean, because managers will often ask for more resources than are absolutely necessary. Adding too many people in a group frequently leads to lower aggregate output, and it can degrade service. Modern technology allows the best decision makers to be highly productive with very small staffs.
"My view is that it’s more important to keep the business under good financial control than to expand too rapidly, take on partners, and borrow money, all of which can increase risk and operational complexity. Operating a business debt-free is a great luxury and keeps the creditors from controlling the business." (Luddy, Entrepreneurial Life, ch.8)
Case Study
ReplyDeleteAs Jim Collins observes in Good to Great, information tech giant Dave Packard consistently practiced the virtue of contenment in his personal life. "Shortly before his death, I had the opportunity to meet Dave Packard. Despite being one of Silicon Valley’s first self-made billionaires, he lived in the same small house that he and his wife built for themselves in 1957, overlooking a simple orchard. The tiny kitchen, with its dated linoleum, and the simply furnished living room bespoke a man who needed no material symbols to proclaim 'I’m a billionaire. I’m important. I’m successful.' 'His idea of a good time,' said Bill Terry, who worked with Packard for thirty-six years, 'was to get some of his friends together to string some barbed wire.' Packard bequeathed his $5.6 billion estate to a charitable foundation and, upon his death, his family created a eulogy pamphlet, with a photo of him sitting on a tractor in farming clothes. The caption made no reference to his stature as one of the great industrialists of the twentieth century. It simply read: 'David Packard, 1912–1996, Rancher, etc.'" (Collins, Good to Great, p. 193)
In her book, The Paperboy, Mackenzie Busch explains that her father, entrepreneur and philanthropist Timothy Busch, developed the habit of thrift from a very young age. "After Tim Busch passed down his paperboy empire to his brothers and sister (Karen) in high school, he started a lawn mowing service that became even bigger than his newspaper empire. Yep, my father had the entrepreneurial touch even before he was old enough to shave, see the trend. Not only did he graduate with flying colors from Clinton High School in 1972 as a two-term student council president, a star athlete, a whiz student, and a devout altar boy, he also managed to save up a whopping $8,000 from his part-time jobs pumping gas, delivering newspapers, painting houses, and mowing lawns—a true Huck Finn! Eight grand may not sound like much today, but Dad says (at the time) it was like having $800,000 in the bank. Wow, right? So, adjusting for inflation, my teenage father was almost a millionaire before he even went to college? What a show-off.
ReplyDelete"From his paperboy and lawn mowing businesses alone, Dad was able to pay for his college education without one penny of help from his father, who (by the way) had enough money to pay for all his kids’ education. But, as mentioned, Grandpa and Grandma were tough cookies who taught their kids how to fend for themselves. Although Grandpa had a successful chain of supermarkets, he was a strict father who made sure his kids paid for their own cars and college. Did Dad complain? Heck no. He got to work and never stopped saving for his future." (Busch, The Paperboy, ch. 5)
Case Study
ReplyDeleteIn More Than a Hobby, Hobby Lobby founder David Green explains how his business practices thrift in the small details of daily management. "When it comes to day-to-day operations, we hold store managers accountable for such things as housekeeping expenses. They have to go out and get bids from local cleaning companies, and since they don’t always know what’s a good price and what isn’t, we help them. About five years ago we started giving them a per-square-foot guideline and said we were going to start watching that particular expense category. At the end of the year we published a list of all the stores, from low to high on a square-footage basis. Every store manager who hit or beat the guideline got a $500 bonus.
"Amazingly (or maybe not so amazingly), in that first year, we saved more than half a million dollars on housekeeping costs. Today, the savings could be twice as much, since our chain has grown.
"To me, the $500 in a store manager’s pocket is money well spent, compared to the thousands and thousands he could otherwise waste by paying too much for floor care.
"We’ve even started doing a similar monitoring of our window-washing expenses. The dollars here are smaller, but they still deserve attention. We’ve set a per-square-foot guideline on how much a store should pay to have its windows cleaned.
"I doubt if very many retail companies in the world know exactly how many square feet of windows they have! Well, we know, because we’ve counted. That enables us to calculate the per-store cost of keeping them clean and, once again, form an annual ranking from low to high.
"There’s no bonus to earn in this case. The incentive for store managers is simply to not look bad on the report. And they take it seriously." (David Green, More Than a Hobby, ch. 5)
Case Study
ReplyDeleteIn his autobiography, Made in America, Wal-Mart founder Sam Walton emphasizes the importance of thrift in order to keep one's business competitive. "Control your expenses better than your competition. This is where you can always find the competitive advantage. For twenty-five years running - long before Wal-Mart was known as the nation's largest retailer - we ranked number one in our industry for the lowest ratio of expenses to sales. You can make a lot of different mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you're too inefficient." (Walton, Made in America, p. 317)
Case Study
ReplyDeleteIn his autobiography, Eat Mor Chikin: Inspire More People, Chik-fil-A founder S. Truett Cathy discusses the importance of thrift when starting his first restaurant with his brother, Ben. "Ben and I had to be patient in the early days as we built our business. We didn't have any money for advertising. We had to build our restaurant on satisfied customers, one at a time. We were profitable from the very beginning - we had to be. But the profit was skinny, and we kept our overhead low to maintain it.
"These days people come up with a concept for a restaurant chain, borrow as much money as they can, rent a fancy office, and start out with the image of success. Sometimes these high-powered business people find themselves overextended. I like our concept better. We stayed on top of our expenses and never faced a bill we couldn't pay. We earned our reputation and good name, relying on Proverbs 22:1, 'A good name is better to be chosen than great riches, and loving favor rather than silver and gold.' People trusted us to pay our debts on time. They learned that I could handle any problem but a financial problem." (Cathy, Eat Mor Chikin, p. 42)
Case Study
ReplyDeleteFrom a young age, the virtue of thrift was both a personal character trait and a cultural legacy for Heinz Ketchup founder H. J. Heinz, as Quentin Skrebac explains in H. J. Heinz: A Biography. "Heinz was blessed with the German affinity to save. Through his teenage years, Heinz saved and invested in his father's brickyard. At seventeen, he was said to be a partner in the business, and by twenty-one he was part owner in the brickyard. He invested in new heating and drying equipment and kiln design to allow bricks to be made through the winter months. These types of investments came from his focus on cost accounting. This was an important advance, allowing inventory to build in winter for spring and summer sales. These upgrades improved productivity and sales and reduced costs per unit." One of Heinz's early biographers "believed that his success in business was related to his 'hatred of waste which he had learned in his boyhood.' It is interesting that he used the term 'waste,' which today is the cornerstone of the lean manufacturing philosophy - that every effort should contribute to corporate profits." (Skrebac, Jr., H. J. Heinz, pp. 44-45)
Case Study
ReplyDeleteIn his memoir, My Side of the Street: Why Wolves, Flash Boys, Quants and Masters of the Universe Don’t Represent the Real Wall Street, Investment Strategist Jason DeSana Trennert recalls some valuable advice he and his partners received from former ISI colleague Jim Moltz on starting up their own new investment strategy company, Strategas, during an informal lunch meeting. “As we took our seats at the restaurant, we were apologetic about our decision to leave a firm that had been good to us. Through a wry smile he said simply, ‘It’s forever been thus.’ As far as advice, he [told us something that has been hugely valuable for us:] ‘keep your fixed costs as low as possible. When I was running C. J. in the seventies and eighties we would make projections about our revenues every year and every year they were hopelessly off. We learned quickly that the only thing we could predict with any accuracy were our costs. Avoid the fancy space and the support staff and the guaranteed contracts. Focus like a hawk on your fixed costs and give yourselves a chance to succeed.’” (Trennert, My Side of the Street, pp. 147-48)
Case Study
ReplyDeleteIn Rumsfeld’s Rules: Leadership Lessons in Business, Politics, War and Life, Donald Rumsfeld explains the importance of practicing thrift in business and government, particularly where other people’s money is at stake, and offers an example from his time at the Pentagon. “When I served in the Nixon administration, I recall a plane being sent across the country to deliver a briefcase to one of the President’s top aides. I later discovered that inside that briefcase were the latest copies of Time and Newsweek and a collection of newspapers. Thousands of dollars were spent to deliver items that would have cost a fraction of that expense had they been purchased at the local newsstand.
“If we look carefully, we can see the phenomenon of wasting ‘other people’s money’ at work every day. If as customers, for example, we each were required to pay for the packets of ketchup at the local McDonald’s or charged for every napkin used at a Starbucks, I have a sense we would handle them with greater care. Because these items are thought to be ‘free,’ as customers we often give little thought.
“In neither the public nor the private sector is there someone standing around, day and night, watching over everyone to make sure they are spending the taxpayers’ or shareholders’ money wisely. The best you can hope for is to attract and reward people who have that internal gyroscope, and an innate understanding and respect for the value of ‘other people’s money.’ Leaders need to search for people who instinctively appreciate the wrongness of waste and misuse.
“During one of my first meetings with my staff in the Pentagon in 2001, I made a point of discussing matters that might have been seen as minor, considering the challenges facing the Department. But I felt they were important. I advised my staff not to make personal phone calls on government phones, to be considerate of taxpayer dollars, to treat every expenditure as if it came from their own pockets. I asked them to schedule regular briefings with ethics officers and I personally consulted with the senior ethics official to see how we were doing. I wanted to set a tone – early on – to establish a mind-set, to create a culture that emphasized the importance of respecting ‘other people’s money.’” (Rumsfeld, Rumsfeld’s Rules, pp. 270-71)
Case Study
ReplyDeleteIn the conclusion of his book, Thinking Outside the Box: The Wine Group Story, Arthur Ciocca, founder of Wine Group, Inc., summarizes how his company developed its philosophy of foregoing the temptation to short-term financial gains in order to attain more significant success in the long term. “Years ago, the easy course would have been to sell the company – we even received several unsolicited offers. It would have been equally easy to take the company public, with extraordinary pay-outs to the current owners. We never once seriously considered either of the options. Selling out to a competitor would probably have achieved the highest economic return but it would have resulted in the loss of jobs for a lot of valuable employees who were instrumental to our success. Going public would have been totally unprincipled, given our previously stated positions that cyclical agricultural companies don’t belong in the public arena. Instead, we chose to be dedicated to investing in the growth of brands, facilities, distribution networks and an organization with enduring values.” (Ciocca, Thinking Outside the Box, p. 104)