The MSME and entrepreneurship sector, which constitute one-third of India’s GDP, was one of the worst affected sectors during the COVID -19 pandemic because their resources were limited to sustain their larger businesses. According to studies and surveys, the national lockdown imposed in April 2020 had a negative impact on approximately 95% of firms.
Until August 2020, 70% of businesses remained disrupted. MSMEs had predominantly faced three critical barriers: market access, overall productivity, and access to more funds.
The complexity of the challenges imposed by the COVID-19 pandemic led to the emergence of frugality. Entrepreneurial frugality can be described as relooking the business model and focusing on new strategies to reduce the cash flow so that it can withstand a crisis.
Simply put, it is a mindset and approach to developing new products or services that emphasizes long-term growth and inclusivity at scale. This led to the emergence of stronger MSME post-COVID. Even a recent report by NeoGrowth states MSME has witnessed a strong revival post the COVID-19 pandemic as 66% of MSMEs are investing heavily in digital strategies to accelerate online sales post-Covid.
The concept of frugality got its prominence during and post-Covid era but it has been there for quite some time. If we take a look at tech mogul Mark Zuckerberg’s business strategy and lifestyle, he never spent billions on expensive housing or a lavish wedding when he wedded his wife Chan. He even drives an average-priced car he bought by trading his previous vehicle.
Provides an effective system of cost control
Frugality ensures an effective cost-control system for a business. This is true for all sizes of businesses. The company’s spending and investment decisions should be thoughtful so that after implementing those decisions one should lose a huge chunk of the market share to the company’s cost-effective competitor.
Many entrepreneurs, who kickstarted their companies on their own, had to rely heavily on their parents’ savings initially.
This was the story of American entrepreneur Jeff Bezos. He founded ecommerce giant Amazon in 1994 out of his garage in Seattle and was heavily dependent on his parents’ savings. Despite today being one of the successful e-commerce platforms, Amazon continues to endorse frugality.
Frugality also gives birth to innovation because when you’re in a challenging environment, only innovation can help you to turn the situation into gold.
How frugality can help a business
Competitive market pricing: Having a cost advantage over your competitors can change the ball game for you. However, only businesses that keep their expenses under control can charge lower prices for their products and eventually turn a profit. Being frugal can help your company reduce production costs and gain a competitive advantage.
Don’t forget that the market mechanism only rewards the fittest. In order to survive, firms and companies must be efficient and offer competitive market pricing.
Better profit margins: To obtain greater profit margins, enterprises need to be frugal about their expenditure. The key to achieving that goal is working with similar prices to that of the competitor, thereby saving tremendously on expenses.
Interest expense saved: Entrepreneurs that can cut costs and spend frugally make smart financial decisions and reinvest the saved money back into the business. By doing so, a company can remain debt-free. But suppose your business does require additional financing for expansion or to introduce a new product. In that case, your frugality will help you make the right decision instead of seeking hefty interest loans that can be a burden on your business.
Edited by Affirunisa Kankudti
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)