Trimming The Fat

Your big, bloated company is costing you an arm and a leg. Maybe it's time to cut back.

Before getting a good deal on office space from an out-of-business dotcom, Earl Mollerud's office was on the third floor of a wing of a church. "It was tough during the summer because they didn't have air conditioning, and during the fall they were slow about turning on the heat," says the CEO and co-founder of Kids' Hair Inc. in Minneapolis. But, he notes, the rent was a saintly $500 per month.

Today, Mollerud, 40, cuts the cost of getting supplies to his 10 Kids' Hair salons by ordering centrally and stocking consumables at headquarters. Each Monday, managers return from sales meetings bearing a week's worth of hair-cutting supplies. "Instead of having somebody drive around delivering," he says, "they just take it back in their cars."

But Mollerud is no miser. In an industry where employee benefits of any kind are rare, he offers stylists a company-paid health insurance plan. "And it's the best one we can get," he adds. And while other stylists book appointments in cheap paper planners, Kids' Hair has invested in a central computerized appointment system that contains information on customers' personal hair problems, preferred hair styles, frequency of visits and other grooming concerns.

There's really no conflict between Mollerud's spending on some items and pinching on others. He and entrepreneurs like him use a technique resembling liposuction, a surgical procedure that removes fat from areas where it's not needed or wanted, to target only certain costs for removal. Rather than putting their entire organizations on stringent diets, they siphon off only costs that add no value. In the process, they say, their profits grow, their companies get stronger, and their understanding of their businesses increases.

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This article was originally published in the March 2001 print edition of Entrepreneur with the headline: Trimming The Fat.

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