Starting a new business involves a host of challenges, and chief among them is knowing what to spend your money on—and how much to spend. You have to consider salaries, marketing budget, office size, technology services, and on and on.
These spending choices require tradeoffs, so entrepreneurs must first develop a strategy for allocating limited resources across a wide range of available options. Too often, assumptions about the potential market and its clients can cloud our judgement about expenses. Let’s examine two cases, one a former colleague and the other a close friend.
The first is Colin. After managing a sleeve of a successful hedge fund in London for five years, and building ample savings, Colin was ready for his own shop. From past experience, he believed that attracting wealthy clients required high-end office space; so he leased space in a West End office building at a price that would rattle anyone’s teeth.
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