Cut Costs (Not Your Own Throat)
Cost cutting is as common as spring showers when the economy goes south or your company starts missing plan. It’s smart to get out in front—aggressively—in tight times. That said, you gotta know what to cut and what leave alone. What to cut?
Absolute waste. It’s stuff like note paper and things like extra, unused phone minutes. Ask employees for their cost-cutting ideas. They know where the waste is buried better than you do.
Overly expensive purchases. Try to get three bids on practically everything you buy, especially large expenses—and even on small, ongoing expenses.
The P&L statement. Go down your expenses line by line for other ideas. Utilities? Can you crank down the thermostat 5 degrees for savings?
But beware of cutting into bone. By that I mean, triple-check that cuts don’t accidentally lower revenue or simply shift costs. Seriously ponder before cutting the following.
Marketing. The advertising and P.R. expense lines are favorite whipping boys when business is hurting. The problem is that down times are when you need your name out there more than ever. Otherwise revenue will fall further. Certainly, stay within industry guidelines (generally 4 to 5 percent of sales) and measure which efforts are effective (the web makes this easier than ever). Hard times also open up opportunities to negotiate harder since you have leverage over desperate media outlets.
Education. This is the lifeblood of your company, essentially no different from R&D. Less of this means more ineffective and uninspired employees. Do. Not. Cut.
Technology. Yep, hold these expenses to a specific ROI but be very careful with cuts. Reductions here generally mean you’ll wind up needing more humans doing what the technology would’ve done. Further, you’ll lose valuable reporting tools, essential for strategic thinking.
Bottom line: Cut, yes. But cut with care and understanding. That will help profits and get you pointed north again.
To Regulate, or Not to Regulate. That is the Question.
Whither regulation? Lots of debate on this. With firms crumbling left and right, especially in banking, the most unlikely characters are jumping into the regulation bed together. Imagine Ayn Rand and Karl Marx canoodling in a corner at Smith & Wollensky’s.
On the right, many in the government-is-the-problem crowd suddenly want the feds to step in and support the free-falling markets. On the left, many in the government-is-the-answer crowd are loath to bail out a bunch of Wall Street fat cats.
The history of regulation shows it swings back and forth like the pendulum of a grandfather clock. Typically, regulation is light until stability grows into instability as excesses grow and consequences settle in. It’s all invisible until suddenly one morning the consequences crash through our kitchen windows. (Note: Adam Smith’s “invisible hand,” made famous in his 1776 “Wealth of Nations,” referred not to federal intervention in the markets but to the societal benefits of people behaving in their own interests.)
Next: Government flies from sleep into overreaction: “We must regulate!” As time goes by and we feel the benefits of some regulation, “the regulated” begin crying that they’re so manifestly pure in interest and intent that they no longer deserve the chains of regulation. It isn’t in their interest to acknowledge that regulation helped stabilize things to begin with, and they count on the short collective memory of the citizenry to forget it.
Soon the people have allowed their representatives to water down regulation. After a short-lived honeymoon of good behavior, history shows that too many swashbuckling CEO’s sidestep former laws that had become rules that were now, really, simple recommendations (weren’t they?).
Always, we fail to understand the mind of the business leader. Most honed their competitive mettle in sports—much of it healthy, like doing their best, learning to lose gracefully, good sportsmanship. But many competitive people take one particularly bad principle from the lockerroom to the boardroom: The tendency to stay just a shade within the rules and when nobody’s looking, Katie bar the door.
When basketball refs aren’t calling fouls the competitive player will foul more to stop his opponent. When the refs don’t call the fouls, you don’t exactly hear the culprit yelling, “Hey, ref, you missed that last foul! I really hacked him good!” Not gonna happen.
In the business world, leaders ignore boundaries if there’s no regulator around and they’re pressed to gain every edge to beat quarterly expectations. Guidelines fade fast when they feel pressure to perform (with kid’s expensive schools, hefty house payments). The rationalization defense mechanism kicks in: Those aren’t really rules.
Ironically, regulation is good for business. It’s good medicine, whether preventing or curing disease. While they don’t like the taste, without it business can’t help itself from wallowing in the mud, forgetting the old line about pigs getting fat and hogs getting slaughtered.
Recent abuse is so bad that the medicine needs to be industrial strength yet sensible enough to restore confidence in our institutions and rebuild their balance sheets. We got through much the same mess with the mortgage-inspired S&L crisis of the ’80s. Let’s hope our memories are a little longer this time around.
Betting On (or Against) the Future—Your Choice
Remember back about a decade ago when Xerox was stumbling toward the cliff of bankruptcy? They regained their footing by going on a cost-cutting rampage. Fortunately for Xerox, they kept one cost center sacrosanct: Research and development. The corporation has since recovered and pulled in a billion dollars a year. Chalk up the lion’s share of earnings to products developed by their comfortably budgeted R&D team.
This should send a clear message to our small-business community. Your products and services need constant improvement—hard-earned customers demand it. Whether technological, procedural or educational tweaks, you gotta do it. Otherwise you’re betting against your future.
There’s an interesting broader context here. In recent years, our country’s leaders have been betting against our collective future. Just look at our stunted growth in science and medicine. Why is this? U.S. university science grads now rank 17th in the world. That’s just the start.
To make matters worse, many of our best graduates are immigrants who, for a variety of reasons, go back to their countries of origin to develop new technologies and fuel employment and innovation outside the U.S. In a global economy, that spells disaster for America.
Why has the U.S. fallen backward and how do we right ourselves? We need to coordinate our political, educational, and business communities to promote opportunity. (Microsoft’s Bill Gates rightly lobbies all the time to improve our schools and liberalize our immigration policy.) That takes financial support, expanded curricula and more quality teachers.
You can do your part. As a small businessperson, don’t take your eye off innovation. Consider getting involved in your local community to increase focus on science and technology. Your community and business’s future depends on it.
Strategic Alliance is for Small Business Too
Sunday I settled into The New York Times business section and found a surprisingly delightful Page 1 story about Disney’s 2006 purchase of Pixar Pictures and the combination’s success. Here’s an instant where small-business people could tear a page from Corporate America’s playbook.
Sure, strategic alliance is something of an overused phrase. But it’s an important part of your small-business arsenal. Alliances can land access to otherwise unavailable technologies, employees, customers or financing. “Strategic alliance” is a catch-all for everything from special vendor relationships, mergers of equals, sales or acquisitions. Yet all of them contain potentially treacherous curves.
Consider these five points prior to, during and after a strategic pairing:
1. Team only with companies whose values and philosophies match your own healthy culture.
2. When finalizing details of the combination, define in writing:
a) What each player brings to the field
b) Each player’s needs and desires
c) Authorities and responsibilities
d) Directions for dissolution—how would the combo unwind? Assume nothing and imply nothing. Murphy’s Law is even more present in strategic alliances.
3. Insure the two companies have seamless borders. Firewalls create miscommunication and inefficiency. Personnel from the combining companies should talk directly to one another rather than send smoke signals up and down the corporate hierarchy. This isn’t as simple as it sounds. Each party needs to introduce people by telephone, videoconference or in person and define the communication channels.
4. Leaders should hold team sessions to explain the reason for the combination and its benefits.
5. Also hold regular conferences to discuss how each side’s pre-agreed needs are being met, what’s going well and what needs attention.
For the small businessperson, a well-considered and executed strategic alliance can mean 1 + 1 = 4.