Penny Wise, Pound Foolish
No, I am not talking about a certain *scary* clown with the infamous red balloon.
This famous idiom “Penny Wise, Pound Foolish” (or in Malaysian context “Sen Wise, Ringgit Foolish”) is used to describe someone who is very particular with small sums of money, but wasteful on big sums of money. This inadvertently will diminish his/her net worth.
Today I want to share 3 separate short stories, that I have encountered, and will very well be a great representation of this saying.
The first story being the one that gave me the idea of writing this post.
FIRST: Spotify Free Cafe
Imagine you heard (from a friend) of a very beautifully designed cafe, with a pretty decent selection of cakes and has aromatic coffee that will satisfy any caffeine addicts.
On bright morning – cue chirping birds – you decided to pay this cafe a visit. As you entered the cafe, you were greeted with the aroma of coffee and you bask in the beautiful set up of the place. You get to your seat and ordered your usual morning coffee. Cost = RM12.
Normal.
As the waiter took your order and served you a cup of water, you quietly observe your surroundings. It wasn’t crowded, just yet. So, you could enjoy the space in peace accompanied by an upbeat Jazz music playing in the background.
You take out your book and flipped it open to the page divided by your favourite bookmark. Then, the Jazz music that you were enjoying began to fade out.
Your eyes never managed to read the first paragraph as what happened next stopped you in your tracks.
What followed the fading out of that Jazz was not another Jazz.
Neither was it any soft pop.
It wasn’t a song, altogether.
It was a very familiar ad that you’ve heard countless times – promoting an upgrade to “Spotify Premium”. An ad that you haven’t heard for a long time ever since you upgraded into “Spotify Premium”.
Now, tell me, how do you feel?
For me, it was surprising at first, then disgust. Why? It’s hard to reason why a business that could afford to spend on interior design, promotion and marketing, etc… But just won’t spend a mere RM20 per month to have seamless music.
Another thing occurred to me: Does that also mean that what the cafe is serving me is of low quality (aka cheap) but selling at upmarket cafe prices?
Yes, perhaps there is no PLUS points to provide a seamless cafe / jazz / chill out songs. But in this case, it has a negative impact. It’s not a RM2 million investment… It’s less than RM20. The cafe just needed to sell a few cups of coffee in a month to recoup that cost – not to mention the owner can use Spotify on his/her private capacity as well!
Perhaps the majority of customers won’t notice because they are busy chatting, or perhaps the cafe’s offering is so mouthwatering that this can be ignored. Why would anyone take that chance? Am I missing out something?
Safe to say – I never went back to those cafes. God knows what I was eating/drinking.
How many business opportunities would the cafe have missed out just by saving RM20 per month?
SECOND: Business Case
Part 1 – The Client
I work as a consultant on mergers & acquisitions of businesses, i.e. I help business owners to buy and sell businesses.
Just like anyone who is in the service line, we would often submit proposals or quotations for our services. My customers are often Small & Medium Enterprises (SMEs).
Whether I like it or not, pricing has always been a key negotiation point. It is akin to a scene out of a “Pasar Malam” (night market) where clients will haggle on pricing, and us defending the prices. Our team pride ourselves in providing quality services that is on par with the bigger firms. However, for most SMEs, we could not deliver that quality if we were to submit to their pricing demands.
Hence, we compromise on quality to deliver based on the pricing that they want to afford (e.g. reduce scope of work, provide less advise, etc). We also pay less attention to these clients and focus on those who are more willing to afford the pricing that we prefer.
In some cases, we’d rather let go of the client and let them go for someone else who could afford their pricing.
If you are a business owner who runs a multi-million dollar business, why would you compromise on the quality of the service you are asking for just because of a pricing that is only a small fraction of the value that you would get.
Rather than arguing on the differences in fees (“Penny”), wouldn’t it be more beneficial to focus on the quality of work that your service provider can give (“Pound”)? Pay that extra 1% of fees to achieve millions of dollars impact in the result.
1% of RM1 million is only RM10 thousand. Don’t lose the extra RM1 million because of RM10 thousand.
That’s like losing RM1.00 because of RM0.01. Foolish
Part 2 – HR
I’ll keep this short.
In the course of my career, I’ve heard countless times of business owners “celebrating” the hiring of a capable talent at a cheap rate. This is one of the most brain-impaired act I’ve ever seen, but is very prevalent in SMEs and startups alike.
Pay your talents their dues, or you would suffer (from insubordination, high turnover, other staff issues) somewhere down the road.
Let’s face it – In most cases, only the desperate or someone with their own agenda will offer their services to your firm at below market rate.
THIRD: The Frugal Aunt
Let’s close this off with a story on a more personal capacity and close to heart.
This a story from a long time ago. I come from a family who lives frugally – uncles and aunts too. In our modern society, there are a lot of sales / discounts that is widely promoted in various mediums.
From a different generation in yesteryears, when physical Newspapers were still an “in” thing, there are supermarkets who would promote their promotional items in newspapers. The discounts could be very attractive, no doubt!
This is always a topic between the aunties in my family. Where could they save more money by buying these groceries at discounted prices?
I remember this one aunt who stays a long distance away – like Shah Alam (not the real location) – who would constantly make a trip to KL to purchase discounted groceries based on the newspaper promos. See the conundrum?
She will save on the grocery shopping, of which the savings would probably be less than RM50 (Penny Wise).
The “cost” to get the discount, though, would be higher. We’re talking about the petrol, parking, time spent, etc. (Pound Foolish). In the end it might be a breakeven or loss!
Frugality is good, but it needs to be looked at in its entirety.
Closing Thoughts
I’m sure we will come across some of these instances.
I always remind myself to look at the big picture and hopefully it could reduce the number of occurrences. Take a step back… am I giving up anything else?
Sometimes, it could be on something small like the Frugal Aunt. Other times, it could have a huge impact like the Business Case!
