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."
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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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