5 Rules for Avoiding the Need to Cut Costs

Published on: March 22, 2010

“Cutting costs” has been the buzz phrase for the last decade or so. In some cases, companies got drunk on cheap money and plentiful investors, and in others the unchecked management flaws of greed and vanity led to company bloat. Whatever the root cause, we seem to be only treating the symptoms of the problem. We first look at our staff for the “fat”, then our business process, then… well by then it is usually too late. Although I have mastered the art of cutting costs, I am very aware of the reality: you can’t cut/lose fat without cutting into muscle.

So instead of treating the symptoms, how do we avoid the root cause of wasteful spending?

#1. Never give anyone anything you may have to take away. I use this rule religiously. Don’t give people titles, privileges, perks, raises, or anything else that you may have to take away. It hurts the morale, makes great talent leave, and hurts the company bottom-line (in form of what you gave being actually the “fat”).
#2. “Hack it” for short-term gains and “build it” for long-term ones. This rule especially applies to your infrastructure and other fixed costs. Figure out how to push your existing infrastructure to the limit before you start spending. Determine if you are directing your people to engage in wasteful work not core to what your company does. Having a startup mentality at all times will lead you to more frugal behavior and decision making.
#3. Never hire “one trick ponies”. Even when you must hire specialists, look at what other areas they will complement with their skills. You should always have an updated skill matrix document visible to all and work on filling in the holes when performing interviews.  During downturns, “one trick ponies” will cost you dearly.
#4. Hire adults and treat them accordingly! An A-player or alpha personality type does not guarantee adult behavior. A lot of times the opposite actually occurs, which results in company “fat” in the form of politicking, creation of functional silos, territorial behavior, etc. And by the way, most so-called “A-players” I have dealt with tend to surround themselves with a lot worse talent. If your organization is comprised of individuals who are able to be the “CEO of their job”, it is very unlikely you will build a fat hierarchy and later need to “lean it out”.
#5. Develop your product together with the customer. Better yet, unless you have a deposit check from at least one customer, do not start the work. Why? In the Lean Startups movement we talk a lot about the minimum viable product. Wasting resources on a product nobody wants to buy is reckless. Having to convince customers to write checks for a product that isn’t totally built yet will make your team listen to what the real problems are that you can solve for your customers.

With athletes, even the most rigorous training and strictest diet will produce a bit of body fat, and the same principle applies in an organization – it is unavoidable, but with the proper discipline and right methodologies, we can keep this “fat” to the levels that do not hurt out organizations.