Why Maintaining Growth While Reducing Costs Requires a Shift in Mindset and Culture — and Lots of Data Maintaining growth in a challenging economic climate requires a very different set of skills than managing growth in a bull market.
By James Barrese •
Opinions expressed by Entrepreneur contributors are their own.
Today's changing economic circumstances require a change in business tactics, especially in product development teams developing new financial disciplines. Many teams believe that focusing on financial discipline can come at the cost of speed in driving new business growth. In my experience, teams that successfully shift and learn to have solid financial discipline while still driving growth are surprised by what they can accomplish. Focusing on growth with discipline yields better, sustainable innovations that reduce cost structures while expanding market share.
Before this more restrained economic cycle began, many organizations prioritized growth over short-term profitability, especially those courting investment. When growth metrics are on the rise, a lack of financial discipline can be easily forgiven, especially if cost-cutting measures are perceived to jeopardize accelerating growth.
As venture capital funding becomes more cautious and many corporations prepare for economic uncertainty, entrepreneurial teams that remain stuck with a "growth at all costs" mentality will have systems, procedures and cultures optimized for entirely different economic conditions. It's hard to change mindset and culture, but teams looking to drive growth quickly need to adapt to be successful in this new environment.
Many product development teams are struggling with these new conditions, as few have ever operated in a high-inflation, high-interest-rate economy on the brink of a recession. Now that we face a new economic reality, businesses are being challenged to make significant changes to operating procedures previously designed to optimize growth above all else. Failing to adapt could exacerbate financial challenges. Product development teams can adjust to this new environment and lead a company to gain market share during this coming economic cycle. Rather than seeing this as a time to hunker down, teams can find a way to make this an opportunity to pull ahead of the competition.
There are three key ingredients to successfully transitioning teams to drive both business growth and financial discipline:
1. Culture
The biggest challenge most organizations will face in this transition is shifting from the growth at all costs mentality to one that prioritizes financial discipline.
The challenge many confront immediately is that their teams weren't designed to take ownership of financial discipline, despite having the greatest control over how their budgets are spent. As economic circumstances change, leaders must push back against the prevailing mentality and introduce checks and balances, insights, ownership and accountability that may have been lacking in the past.
For example, engineering and product teams should deeply understand their operating costs and take ownership of business results. Technology teams are used to focusing on systemic qualities such as availability, performance, quality and security. They now need to understand a company's balance sheet and what drives costs at every layer in their systems. Doing so will allow them to make better decisions when balancing, for example, new features and functionalities with optimization and efficiency. The two can be achieved simultaneously when a team has the right insights and culture.
Shifting the culture to be focused on innovation and efficiency will meet the moment's needs. Organizations will discover they can do this and drive positive business impacts with this new muscle. Internally celebrate successes here to reinforce a culture of balancing top-line growth while improving financial discipline, optimization and efficiency.
Related: Importance Of Self Discipline In Entrepreneurship
2. Data
Striking a better balance between growth and financial discipline is made much simpler thanks to technology.
Most organizations are sitting on a mountain of data and metrics and already use data and insights to drive and optimize their business. Product development teams can use these same tools and practices to chart the course of developing financial discipline. With the right tools, organizations can ensure that their products, services and infrastructure are optimized and efficient. The key is to capture the data and use it.
Any customer interaction with a digital footprint represents an opportunity to drive financial discipline by offering insights into what's driving growth and costs. Teams need to instrument applications and systems to capture these insights. Every team should follow the Pareto principle and use data to focus their optimization efforts.
Deep analytics on infrastructure, systems utilization and performance should be tied to operational costs to produce unique insights into large-scale optimization opportunities that can help lower the company's costs without jeopardizing its growth.
Related: Good Decision Making Requires Good Data
3. Execution
I'm a big believer in focusing on accountability and shared goals to drive change across an organization. For those that haven't prioritized financial discipline in the past, one of the most significant steps in the right direction is introducing a culture of ownership, goals and execution. Having the broader organization aligned with shared goals in driving growth and financial discipline will help set teams up to make the right tradeoffs and execute more readily.
If teams are accustomed to consuming more cloud capacity, for example — and thus increasing spend — without being constrained by cost structures, they should now be enlisted in the fight against unnecessary expenses. If this is a new focus for a company, I would recommend putting together a program that partners with technology and finance teams to track infrastructure costs in a way that can be allocated to domain and application owners and correlated to key business drivers. The goal is to gain cost leverage by technically scaling more and more efficient system usage grows.
Understand what workloads drive revenue and which simply drive costs. Visibility into which groups are driving the most workloads, and consequently the greatest spend, gives insight into where to focus first. I recommend finding one key champion who can act as a company quarterback and take ownership of a holistic analysis, pulling together insights across all teams so that investments in optimization are targeted correctly. The key is to take insights and then drive meaningful execution and optimizations.
Related: Reduce Your Costs And Gain A Competitive Advantage
The result
A greater emphasis on financial discipline doesn't have to come at the cost of growth.
For example, not long ago, I had a team that was continually running way above budget. They argued they didn't have time to optimize costs because it would distract from developing critical new business features. However, their costs were rising significantly faster than revenue, and we needed to introduce some more financial discipline.
Rather than just throwing more capacity into production, I had the team do focused optimizations to drive more efficient system usage, with the goal to reduce their ongoing cost structure. It wasn't long before they found significant cost savings, but the benefits didn't stop there. With focused optimizations, the system's performance dramatically improved, and with it, the customer experience became faster. Also, the system became more stable, so the engineers could dedicate less of their time to troubleshooting production issues and more time to developing. In the end, our cost optimization didn't slow down innovation. The campaign freed up the engineering team to spend more time innovating while providing a better customer experience, all at a lower cost. The team was amazed at their results, and it changed their culture.
Concentrated campaigns can give way to lasting changes. While first developing this skill, teams must make it a special program. However, the best way to keep costs low is to maintain the same lean mentality moving forward. By shifting your mindset and culture and utilizing the right tools to track the right metrics, you'll develop teams that can execute innovative business goals while having strong financial discipline. These new disciplines will enable companies to grow successfully and pull ahead during these uncertain economic times.
