coffeeSeveral years back, I was meeting someone for a coffee. He was a friend of a friend and had just quit his job to take the entrepreneurship path. The meeting was requested by him (he has been pestering me for months) and he wanted to explore some business opportunity with us. I remember clearly that I had a condescending attitude towards him right from the beginning. Here I was, the invincible market leader, the big guy in town, and there he was this small insignificant not-even-sure-what-they-did kind of a business. To make matters worse, he requested if we could go to the coffee shop down the road rather than my usual place, as it seems in that place the coffee was a few bucks cheaper. Client-vendor protocol dictated that he picked up the tab, and I secretly rolled my eyes, at the thought of he trying to save a few bucks.

However, very soon into the meeting he started impressing me and I felt a bit ashamed for my initial attitude. He turned out to be a very sharp and sincere guy who also displayed amazing clarity in his way of thinking. At some point once we became more comfortable with each other, he explained to me why saving those few bucks on coffee was very important for him and his business. He needed to have at least 20-25 such meetings every week, to be able to convert some deals. In his business he was targeting to generate a 20% return on invested capital annually, and planned to reinvest all his earnings in the initial years. His cash-to-cash cycles was < 1 month, so his monthly compounding rate had to be 1.54%. Just $50 saved every week on coffee, compounded monthly at 1.54%, amounts to over $68,000 in 10 years and almost half a million dollars in 20 years. Irrespective of what I thought about his business, his sheer attitude towards money floored me. This was just the coffee, and I started appreciating that he would think about every single cost of his, like this. For him a $10 saved today on a recurring expense, is not just a $10, but it is the $10 compounded over the lifetime of his business at his targeted compounded rate of return (whatever that might finally end up being). For me it was an Aha-moment of epic proportions. It completely changed the way I looked at cost savings.