The Optics Premium

On what founders quietly spend to look successful, and why nobody is calling it a tax.

There is a category of business expense for which no accounting line exists, no quarterly report measures, and no tax authority has yet produced legislation, although one suspects they will eventually because the amounts involved are genuinely significant. The category does not appear on any chart of accounts in the form one might expect, because the spending is distributed across many different ledger entries and is rarely seen as a single coherent thing by the person doing the spending. It appears under marketing, premises, equipment, professional development, travel, hospitality, and occasionally under categories that nobody can quite remember inventing. The cumulative effect of this distributed spending is what is worth examining, because it constitutes a substantial proportion of the operating cost of most growing businesses, and almost nobody is calling it what it actually is.

The optics premium is the cumulative cost of decisions a founder has made to ensure that the business, and frequently the founder personally, looks more successful than the underlying numbers would currently justify. Each individual decision is justified by some reasonable-sounding commercial argument. The office is in a better postcode because clients need to know we are serious. The website was rebuilt at significant expense because the previous version was holding us back. The conference appearance was booked because the audience would have noticed our absence. The car was upgraded because driving to client meetings in the old one felt unprofessional. The renovation of the meeting room was completed because impressions matter in our sector. Each decision is locally rational. The cumulative pattern is what the founder has not been measuring, and the cumulative pattern is the optics premium.

The optics premium is what founders quietly spend to look more successful than the underlying numbers currently justify.

The phenomenon is worth taking seriously because the optics premium scales almost perfectly with the founder's commercial insecurity, which is the opposite of how one would expect it to scale if it were genuinely connected to commercial outcomes. The most expensive optics decisions one observes across SMEs are almost always made by founders whose businesses are in the most fragile position commercially, because the optics spending is providing a psychological function for the founder that has very little to do with the external impression it is supposedly creating. The founder spends money to manage their own anxiety about how the business is performing, by performing an externally visible version of the business that is doing better than it actually is. The performance is genuinely effective at managing the founder's anxiety. It is considerably less effective at producing the commercial outcomes the spending is supposedly designed to support.

Once one starts to notice the optics premium operating in businesses one has been working with, it becomes quite difficult to stop noticing. The office that is conspicuously larger than the current team requires. The hospitality budget that has expanded in line with the founder's social circle rather than in line with any commercial activity. The senior hire who was brought in before the business genuinely needed them, because the founder wanted a peer in the building. The personal car that the founder uses for business travel, which sits significantly above what the business would approve for any other employee. The accumulated total of these decisions, in any given growing SME, is rarely less than three percent of revenue and frequently considerably more, which is meaningful capital being directed toward optical purposes rather than operational ones.

The most interesting feature of the optics premium, from a behavioural standpoint, is how invisible it is to the founder paying it. Founders who would describe themselves as financially disciplined will tolerate optics premiums of six or seven percent of revenue without identifying any single component of the premium as wasteful, because each component has been justified in isolation through a commercial argument that, in isolation, has merit. The total premium is the sum of locally rational decisions that produce a globally irrational pattern, and the founder is essentially incapable of seeing the pattern from inside it. The pattern becomes visible only when the founder eventually comes under genuine financial pressure and is forced to identify which expenses can be cut quickly. The expenses that can be cut quickly are, almost without exception, the optics premium expenses, because the operational expenses cannot be removed without affecting the business and the optics expenses can be removed without affecting anything other than the optics.

This produces the slightly comic phenomenon of founders, eighteen months into a financially difficult period, discovering that the business is fundamentally fine once the optics premium has been removed, which raises the obvious question of what the optics premium had been buying for the previous several years. The founders rarely ask this question explicitly, because the answer is uncomfortable. The optics premium had not been buying commercial outcomes. It had been buying the founder a particular version of themselves that they could present to the world, and the version had been important to the founder for psychological reasons that the commercial framing of the spending had been politely obscuring. The discovery that the business does not need the optics premium is also the discovery that the founder had been the customer of their own marketing budget for a number of years.

The founder had been the customer of their own marketing budget. The discovery is uncomfortable, which is presumably why so few founders make it voluntarily.

There is a quiet and slightly counterintuitive correlation worth noting between the founders who pay the lowest optics premium and the founders whose businesses are most commercially robust. The two phenomena are connected, although not in the direction one might initially assume. The robustness does not produce the lower premium, because financially robust businesses can easily afford higher optics spending and frequently choose not to. The lower premium produces the robustness, because the capital that would otherwise be flowing into optics is instead flowing into the operational substance of the business, and the cumulative effect of redirecting that capital over a period of years is significant. Founders who refuse to pay the optics premium accumulate operational depth that founders who pay the premium do not, and the operational depth eventually becomes commercially visible in ways the optics spending never quite achieves.

The most useful exercise a founder can run on their own business is the optics premium audit, which involves classifying every operational expense from the previous twelve months into either operational or optical, and then calculating what proportion of total spending has been directed toward each category. The audit is uncomfortable because most founders discover that the optical proportion is significantly higher than they would have estimated before the audit began, and because the audit produces a list of specific expenses that the founder will then have to choose either to defend or to discontinue. The choice is the work. The audit is merely the diagnostic that surfaces the choice for explicit consideration, which is the role most diagnostics play and the reason most founders are reluctant to conduct them voluntarily.

The optics premium is one of those quietly significant features of commercial life that becomes visible only once it has been named, after which it becomes essentially impossible to unsee in any business one walks into. The cumulative cost across the SME sector is substantial enough that one suspects, if it were ever measured properly, the figure would be alarming. The cumulative cost across any individual business is usually sufficient to fund the genuine operational improvements the founder has been postponing, although the postponement is rarely framed in these terms because doing so would require acknowledging the optical priorities the spending has actually been serving. The audit is available to any founder willing to conduct it. The discomfort of conducting it is, as discomforts of this kind tend to be, considerably smaller than the cost of not doing so.