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Snip, Snip

Cut the technology budget--but don't let your business get stuck in the stone age.

If the slowing economy has you tightening your company's purse strings, you're not alone. IDC estimates IT spending will increase by only 4 to 5 percent this year, down from the average annual increase of 8 to 9 percent it saw during the period from 1997 to 2001.

But spending less on technology could cost you plenty. Small businesses must continue investing in new technologies to keep pace with-and surpass-the competition, says Ray Boggs, vice president of small-business and home-office research at IDC. Wireless and broadband are two key areas for investment, he says, but entrepreneurs should be open to other emerging technologies.

If you must cut tech spending, do it by postponing expenditures rather than canceling them, Boggs says. "Instead of upgrading everyone to broadband in three months, do it in 12 or 18 months."

Another savings strategy: Make existing hardware last. Instead of buying new PCs, upgrade by adding memory or new peripherals.

Back in 1995, when George Granoff bought The Art Store Inc., a Milford, Massachusetts-based art supply store chain with four locations, the previous owners still relied on pen and paper. Granoff, 55, knew technology could give him an edge, so he purchased an inventory tracking system: "I credit [our success] in large part to our technology."

Finding a balance can be tough when vendors urge you to "spend till it hurts." Your competition's actions can be a guideline, but don't let them rule your decisions. Many of Granoff's competitors have slashed their already-tiny tech budgets even further in recent months. Though Granoff is cutting back in certain areas-such as his Web site-his company's success has convinced him that smart tech spending pays off: "I'm opening new stores."

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This article was originally published in the November 2001 print edition of Entrepreneur with the headline: Snip, Snip.

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