'Frugal' NIU Professor Examines Entrepreneurs

Jan 22, 2020

Dr. Tim Michaelis is an Assistant Professor of Management and Entrepreneurship at NIU's College of Business
Credit Northern Illinois University

A Northern Illinois University professor has tips on how being frugal can help in business.

Professor Tim Michaelis admits he lives quite frugally, and traces his habits back to his grandparents. This was especially evident when his grandfather examined the family earnings. 

“Working, he did the math and realized if he was just going to save 5-10% of his salary, he would not retire. Which was what they were telling people to do at the time. Just kind of through my childhood, I learned to be cautious and careful with resources," he said.

This also meant Michaelis didn’t get much instant gratification.

“So having to not get the candy bar, not order a soda at dinner, pretty much ever," he said. "It sucks when you don’t necessarily know why you’re doing it, but I can say now it’s definitely helped me out a lot.”

Michaelis was curious if people starting a business shared these traits.

“We looked at essentially 200 entrepreneurs," he said. "We went out, surveyed them, trying to figure out if this level of frugality that they rated, coincided with any behaviors that entrepreneurs already do that are typically thought of as being resourceful.”

They did. Examples included sharing resources with other companies to reduce the cost burden, and leasing equipment for a job instead of buying new. 

Overall, he found those with more frugal habits had behaviors more closely associated with entrepreneurship. Michaelis noted that a frugal entrepreneur’s ability to plan ahead shows value even when a company is just starting to raise money.

“Showing that to other people and clearly articulating why you’re coming up with these contingencies can really help get people on board with your idea," he said.

Michaelis said it also allows for versatility. 

“So instead of investing everything they have in their idea, they’ll hold back that 10-20% in funding just because they might need to pivot and do something else.”

But Michaelis noted that frugality can be a double-edged sword.

"Frugal people don’t really trust people, so sometimes when they’re working with others or they’re trying to gather resources or protect the equity in their company, they might not be as open to receiving that help.” 

That, in turn can lead to slower growth. Michaelis also said frugality should not be confused with simply being cheap. He said the latter habit could lead an entrepreneur to avoid pursuing opportunities that don’t show their value immediately, but could be useful for a company over a longer period. The professor also added that being frugal, even on a personal level, doesn’t mean cutting out luxuries.

“I’ll splurge. I’ll go out to a Michelin star restaurant and enjoy it, but at the same time, most of my days I’m eating rice, beans, frozen vegetables, making sure it’s still healthy, and it honestly costs only about $200 a month."

He said this applies even if someone isn’t of limited means.

"There’s some really cool research out there by Daniel Kahneman. He figured out that when you hit about $50-75k in annual income, your well-being does not increase that much. Your personal happiness does not accelerate as you make more money. So what I try to do is tell people, find out what really makes you happy about life and enjoy those things. You can spend money on those things, but if you’re not obsessed with certain things, try to find the cheapest way to get it done.”

In the future, Professor Michaelis hopes to expand his research to measure the success of entrepreneurs, and see how frugal habits affect the actions of investors.