Trimming The Fat

State Of The Market

Big, across-the-board cost-cutting, chiefly characterized by massive layoffs, was a fad among large corporations in the 1990s. Companies laid off more than 700,000 people during 1999 alone, according to career services and placement company Lee Hecht Harrison. But that kind of cost control failed to catch on among entrepreneurs. One reason is that small companies are leaner than large companies, so huge cost curtailment risks cutting beyond fat and into muscle. "If you take it off company-wide, you're taking off things you need," says Jeff Olson, 43-year-old co-founder of Velocity Business Publishing, a book and e-book publisher in Bristol, Vermont.

With robust sales growth, cost savings seems unimportant to many entrepreneurs. Jeff Musa, founder and president of Cutting Edge Software Inc. in Dallas, is a typical case. "Our business is in exponential growth mode," says Musa, 43, whose five-person company writes spreadsheet software for Palm Pilot hand-held computers. "Worrying about costs just drags us down."

Entrepreneurs don't appear to be suffering for their lack of cost concern. In 1998, annual business bankruptcies were down 31.6 percent from 1990, according to the American Bankruptcy Institute. But with a slowing economy, 2001 should see more bankruptcies. "Even if the economy's good," says Olson, "individual companies can certainly be mediocre-and worse."

Though survival may not be a burning issue for most firms at the moment, the seeds of the next age for cost control may already be sown, according to Wil Uecker, an associate dean at the Jones Graduate School of Management at Rice University in Houston. Shoppers of all kinds can now compare prices for many products and services using Internet search engines, online trading and shopping services such as and eBay. "The comparison shopping that now exists means you have to be cost-effective," says Uecker.

Finally, no matter how robust your condition, it could always be better. Liposuction cost-cutting produces savings that beautify the bottom line-even if the top line looks the same. "What it's all about is profit," reminds Mollerud. "Whatever you can bring to the bottom line strengthens the company."

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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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