Core Principle

Core Principle

Make more than you spend: your company can keep going forever. Make less: you will eventually fail

Category: productivity Source: slavingia/skills

What Is the "Core Principle" Skill?

The "Core Principle" skill on Happycapy Skills, identified as grow-sustainably, empowers business owners and operators to evaluate every decision through the lens of sustainable, profitable growth. Its central tenet is simple yet powerful: Make more than you spend, and your company can continue indefinitely; make less, and eventual failure is certain. This skill is rooted in the philosophy of The Minimalist Entrepreneur by Sahil Lavingia, focusing on the practical application of profitability as a foundational business advantage.

At its core, this skill teaches you to methodically analyze costs, revenues, and business choices to ensure you never run out of money or energy. The focus is on spending discipline, judicious resource allocation, and prioritizing profitability over unsustainable growth.

Why Use the "Core Principle" Skill?

Profitability is not just a financial metric-it is a strategic superpower. Achieving profitability gives your business:

  • Infinite Runway: With more money coming in than going out, there is no forced deadline to achieve growth or raise more funds.
  • Clarity and Control: When you are profitable, you are not beholden to investors or external pressures. You can operate at your own pace and on your own terms.
  • Resilience: Profitable companies can survive downturns, experiment carefully, and make decisions with less existential risk.

Relying on outside funding or ignoring your company's burn rate can quickly lead to unsustainable practices and, eventually, business failure. The "Core Principle" skill helps you avoid these pitfalls by instilling a discipline of always making profitability a prerequisite for growth.

How to Use the "Core Principle" Skill

Applying this skill involves a practical, step-by-step approach to business decision making. Below are the main components and rules to follow:

1. Understand the Profit Equation

At the heart of this skill is a simple formula:

profit = revenue - costs

Your goal is to keep profit positive, month after month.

2. Identify and Differentiate Costs

There are two types of costs you must track and manage:

  • Variable Costs (COGS): These scale with the number of units sold. Examples include payment processing, hosting fees, and fraud prevention. If you sell more, you pay more in variable costs.
  • Fixed Costs: These do not scale with revenue and must be paid regardless of sales volume. Examples include domain registrations, basic hosting, and-most importantly-people (salaries, benefits).

3. Apply Cost-Cutting Rules

  • Pay Yourself as Little as Possible (Initially): Start by drawing a modest salary. Sahil Lavingia, for example, paid himself $36,000 a year in San Francisco, dropping to $0 during crisis periods. Increase your pay only when the business can clearly afford it.
  • Automate Before You Hire: Use software tools to handle accounting, payroll, and other repetitive tasks before considering new hires. For example, use Gusto for payroll or Pilot/Bench for accounting.

Example: Decision-Making Flow

def should_incur_cost(projected_revenue, projected_costs, cost_type):
    profit = projected_revenue - projected_costs
    if profit <= 0:
        return "Do not spend. Reassess or cut costs."
    if cost_type == "fixed" and profit < 2 * projected_costs:
        return "Be cautious. Fixed costs add risk."
    return "Proceed if essential and sustainable."

4. Evaluate Every Decision

Before spending, hiring, or scaling, ask:

  • Will this decision help us maintain or increase profitability?
  • Are we spending money we already have, or are we betting on future (uncertain) revenue?
  • Can this task be handled by software instead of a new hire?

When to Use the "Core Principle" Skill

This skill is essential whenever you are:

  • Deciding to hire new employees or contractors
  • Considering increased marketing or development spend
  • Evaluating whether to raise external funding
  • Planning to scale operations or infrastructure
  • Setting your own salary or compensation
  • Responding to a business downturn or unexpected expense

In summary, use this skill every time a financial decision is on the table. Its principles should guide both everyday choices and major strategic moves.

Important Notes

  • Discipline is Key: The simplicity of this principle belies its difficulty in practice. It requires ongoing vigilance and conscious restraint, especially when growth opportunities or external funding seem tantalizing.
  • People Are Your Biggest Fixed Cost: Always be mindful that salaries and benefits are usually the largest fixed expense. Prioritize efficiency and automation before expanding your team.
  • Profitability Enables Freedom: When you are profitable, you are not forced into rushed decisions or dependent on outside capital. This allows you to build your business on your terms.

By consistently applying the "Core Principle" skill, you can ensure your business not only survives but thrives over the long term, with a foundation built on sustainable, profitable growth.