Trimming The Fat

Keeping Costs Down

For growing companies, it's often more important to avoid new costs than to trim existing outlays. Before adding any cost, ask whether it will benefit customers, or only you. That's why Mollerud operated out of a church sublet. With annual sales exceeding $2.5 million, he could have easily afforded more luxurious space. But, he says, "that doesn't matter to our customers."

New expenses that commit you to long-term outlays should be scrutinized with an especially vigilant eye. Musa declined a shot at a low-priced high-speed Internet connection because he didn't need that much bandwidth. "We do a double take at recurring costs or anything that requires us to make a long-term commitment," he says.

Some expenses probably shouldn't be cut. Never scrimp on anything that affects your value proposition or your core competency, Uecker says. "What is it you really bring to the market?" he asks. "You never want to cut there."

For Mollerud's business, that means not reducing compensation for stylists staffing his salons. "You can't keep staff if you don't pay," he reasons. "So we try to find ways for them to make even more money." Liposuction means doing the right thing in the right place. Like a plastic surgeon who does a tummy tuck here and injects some collagen there, financial surgery builds up a company in critical areas while trimming nonessentials.

For most small companies, the issue is not so much reducing costs as finding the best possible allocation of resources. Says Mollerud: "Our philosophy is to optimize costs, not minimize costs. If we can add costs in a way that benefits the business, we do."

Mark Henricks is Entrepreneur's "Cutting Edge" columnist.

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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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