I spend long hours figuring out the next moves in my business along with all the other aspects of my life that somehow have to be mashed around it. Some of it’s on paper and much more is in my head, but rest assured it’s all very real planning. Yet in all that wonderful planning there is a very strong “follow your gut” current. At the end of the day it seems that this current is what really drives things forward and makes it all happen even as well-laid plans fall apart.

I heard Angela Mondou speak yesterday at the Chapter 4 Entrepreneur Week event and she said one thing that stuck out above all else. She was talking about being strapped into the backseat of an F18 fighter on an air combat training mission, wondering what she had gotten herself into as she fought just to stay conscious in the thing. She proceeded to draw a parallel point that went something like “As an entrepreneur you will always have situations when things seem overwhelming and you stop and ask yourself ‘what the heck am I doing here?’”.

That certainly has rung true for me many times (often this is accompanied by overwhelming deadlines or a web server deciding to develop some bizarre quirk), and it’s in this kind of mental wake-up that I look back and wonder how I even got to where I am now. It all moves much faster than the conscious part of my brain can ever hope to adjust to, and that’s where intuition has to be secretly steering it all from the backseat.

What I’m doing with Tilted Pixel feels right and in just a year it’s gone from a name that I was able to snag a .com domain for to something infused with meaning. There’s a certain energy radiating off the name that didn’t exist and I’ve noticed that energy reflect itself in me and in the people that I meet with. Every day this entity becomes more defined and more real. It has hit some amazing goals such as reaching key revenue targets and becoming a federal corporation last August.

I cannot possibly say that the above is the result of a well-laid plan. If anything it’s intuition that determines what the goals should be, and the plan is merely the slave tasked with reaching those goals and making the necessary changes whenever the goals shift.

Steve Pavlina recently wrote about his 30 day news fast trial that he has decided to continue with indefinitely. Despite his excellent points, I’d like to write a post disagreeing with Steve on the matter.

Steve cites a number of reasons why news should be avoided, which can be roughly summarized as news is a short-sighted, biased, negative, selective, irrelevant, shallow, untrustworthy, inactionable and redundant source of information. Even with truly quality news sources these points all apply in some doses, but if most of the news you receive is inactionable then I say that the root problem is you are listening to the wrong news!

I have several fields of interest, of which business and computer technology are of highest relevance to my daily life. I like to keep on top of them for a number of reasons, and sometimes the highly summarized trendy myopic news media suffices. Where Steve has taken an extreme approach of avoiding all news, I simply stay away from the stuff that holds no value to me. I’ve found that a great way to do that this is through RSS feeds, so long as your RSS reader isn’t setup in a way that is visible during work. I have my RSS feeds setup in my GMail account, which I check roughly twice a day. I click the interesting headlines that show up, while my brain automatically filters out those that aren’t relevant.

What do I gain from not blocking myself off from the news media?

1. Inspiration. Whether I need a blog post topic or I’m on the lookout for a new business idea, being exposed to current topics provides fuel for new ideas. Sometimes the greatest breakthrough could be in taking an idea from a different discipline and applying it to something relevant to me.
2. Competitive information. Knowing how the market is doing, what certain companies are up to, and what sort of business and technology advances are out there, or just what’s hot provides plenty of material relevant to my business making decisions.
3. Awareness of trends. Since the news media is indeed myopic, profit-oriented, and controls heavily what people discuss, it provides a good idea of what the current trendy issues are in a particular subject area.
4. Avoiding becoming myopic myself. It’s fine and well to focus on and become an expert in a chosen field, but I don’t want to feel like I am living under a rock. That’s where the stereotypes like the PhD genius who is completely oblivious to the world around him come from.
5. Enjoyment. I find it genuinely interesting to know about some of the things that are going on in this world. The news media places under my nose topics that I would never actively seek out myself, such as the discovery of a new cancer cure or a NASA space mission.

I should also not forget to mention that I’ll know when the planet is evacuating long before Steve

It all comes down to expanding your horizons intelligently, and regardless of its flaws the news media is a highly valuable tool when its user knows of its limitations. Do not forget that other sources of information have their own human-induced faults and should all be scrutinized carefully. The moment a source of information becomes trusted blindly it automatically becomes a source of propaganda.

I’ve been busy answering this question since Tilted Pixel Inc. was founded last year. In my previous ventures spending on growth was sparodic and rarely well planned resulting in seriously suboptimal results. With hindsight being 20/20 I’ve been approaching spending in a much more careful way.

Every business is in danger of the same problem, and many business owners have drowned the seed of their idea by spending like large companies despite having 1% of the budget. Some may cry “this was a necessary marketing expense” even as the repo trucks drive away! I’d like to propose that you avoid this mess by stealing an economics theory and choosing to behave in the manner that it predicts.

First we need to remember that in business there is no such thing as perfect. You never have enough time or money to do what you should, and a major part of consistent success hinges on you being able to create something great inspite of the imperfections that abound. It’s particularly tough to do when starting out as you begin to try to reconcile the vision in your mind with the reality you live in. You can’t have it all so what do you choose?

My economics-based answer is spend the next sum of money that you can afford on the purchase that provides to you the greatest marginal utility.

This is my fancy way of stating two simple ideas:

1. Devote your cash to the items that will bring you the greatest return (highest marginal utility per $ spent).
2. Don’t make an expense that you can’t afford.

In economics marginal utility (the value that you receive from the next of that item) can be used to predict how resources are allocated between multiple expenditures, with the theory that the optimal mix is the one that gives you the “most utility for your buck”. In other words the sum of the utility you have received from your chosen amount of spending on each expenditure is at a maximum.

Economics isn’t business advice however, it’s a set of theories on how the economy and its participants tend to behave and is thus based on interpretation of real world behavior. The above tells us that rational profit seeking businesses tend to allocate their money in a manner that attempts to maximize the desired return. With the idea of marginal utility it also provides a neat model of measuring this numerically. This leads me to suggest that we consciously attempt to use this model to behave in the manner that economics theory suggests we will behave. How’s that for making you dizzy?

Putting It Into Practice

We have a simple model now to help keep spending wise and on track. We will only focus on new spending and assume that any existing expenses of your business are already optimal. In reality you will want to re-evaluate your expenses to fit that assumption, which you can do by applying this model to each expense and lowering those that do not fit your conclusions. You will likely save a hefty chunk when you analyse your expenses in this way even if your original spending decisions were made carefully.

In addition to making a point about marginal utility I made a separate point about only spending what you can afford. This is technically redundant since academically I could argue that a marginal utility calculation truly mirroring real life could award a negative result to purchases that will harm your business. This is unnecessarily anal and tedious so I will instead say that your spending on the growth of your business must not be done at the expense of your ability to pay your bills right now. This means carefully mapping out your cash flow and achieving a current ratio that lets you sleep at night.

You will now make all your purchases according to the calculation of marginal utility that we will apply. For the most part you will rarely ever sit down and attempt to compute an absolute number for this. Marginal utility is only useful in this spending model when compared to other marginal utility amounts, and in general we are going to care about significant differences such as “an order of magnitude greater” or at least “double that of”. It would be quite futile to attempt to perform such a subjective calculation to any greater accuracy.

When looking at the marginal utility I define it roughly as “the purchase’s ability to make my business succeed in the long run”. Very simple definition, but measuring it is very tricky. I want to use the limited resources of my business in a way that will get me the furthest ahead of the game in the long run, meaning that it is best suited for my business to grow. Beware that timing is implicitely factored into this! A key mistake that businesses make is trying to grow too fast, straining resources to the point of financial collapse. Perhaps buying a fancy 3D sign for your new store will attract more customers in the long run and build strong brand recognition, but if it costs you 85% of your available marketing budget I guarantee you that is not your fastest path to growth (and will likely ruin you). When considering the long run effect of a purchase you also have to consider the short run effect to adequately calculate where this purchase will really lead your business in the future.

This model is effective and worth using because it helps highlight the tremendous difference in your return per dollar on various expenses - the very same problem that I highlighted at the start of this article. I mentioned overlooking critical expenses, those that would have provided me a tremendously high return on my money. Rather than seizing the opportunity of those expenses I made decisions that simply would provide a return, failing to always recognize the tremendous marginal utility differences involved. Since money is finite, choosing to spend it in one place necessarily forgoes spending it elsewhere at the same time (opportunity cost).

I recently upgraded my PDA to a BlackBerry to improve my ability to access the internet from anywhere. Despite the rather high monthly service cost, the device easily pays for itself multiple times thanks to the time I save not hunting for a WiFi access point when I need to reply to an e-mail urgently. It also allows me to compose e-mails in situations where my PocketPC did not thanks to the fully QWERTY keyboard. The marginal utility on this device is very high, but only because I am actually able to take financial advantage of the benefits that it provides. Had I bought this device when my business had first started I would have received very little time savings since the company was far less busy, but I would be paying the same high monthly fee. To add insult to injury that monthly fee would have been draining valuable resources that would be far more beneficial if devoted to printing business cards and attending client-gaining networking events. At that point in time the BlackBerry’s marginal utility to me would have been very low.

That’s all there is to it. I make the purchases that I would be crazy not to, so as to gain the most value from the money that my business invests in its growth. I don’t buy something because my competitors do or because it will be useful to me eventually (beware the trap of making a major expense on something you can get a good deal on now, but which you won’t need for a long time). Regardless of what the long-term prospects of my business my be, I recognize that at any moment I only have a certain amount of money to invest into it, and that money must be distributed to the expenditures that given my current business situation will have the greatest long run positive effect.

Bear in mind that this is primarily a mental mindset to condition yourself into using so that you do not fall prey to ill-conceived decisions or premature purchases. You can apply it in an Excel chart, but you can also run through it in your head while at the store. It is not something that should be scribbled out in long and dreary calculations on paper, as such time-consuming advice is rarely followed (see the lack of business plans for proof).