As you attempt to develop cost consciousness, you need to be cautious not to go overboard. When I’ve spoken about this subject in front of groups, often someone misinterprets what I’m saying and assumes that the message is to save as much as you can as quick as you can. I cannot overemphasize that slashing budgets and cutting staff has consequences. In your desire to reduce costs, you may also lose a key person who can make your business a great deal of money or fail to maintain a piece of equipment that breaks down and costs the company a mint. To help you avoid these neg- ative repercussions, following is a list of common mistakes small business owners make.
Reduce advertising and sales budgets in anticipation of a drop in business. Perhaps you foresee a decline in sales because of a new competitor’s success or because of a general economic slump.
Whatever the cause, you decide that the easiest budget cut to make
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21 The Recession Test and Other Consciousness-Raising Tools
is in marketing, since it doesn’t affect your core business. You assume that you can restore the cuts when business improves.
In most instances, however, if your volume drops, the last thing you want to do is reduce advertising and sales expenditures. The ads that don’t run or the tools the sales force lacks may cause you to miss an opportunity that you otherwise would have capitalized on. When times get tough, you want to maintain your presence in the marketplace. Certainly if there is an unproductive salesper- son, it may make sense to eliminate that position, but you should save these cuts for real emergencies rather than using them as preventative measures.
Nitpick about expenditures. Being aware of costs and saving opportunities is very different from micromanaging every expen- diture. The last thing your company needs is for you to be devot- ing most of your time to saving pennies. If you’re the top person or one of the top people in your small company, your example will make everyone paranoid about spending anything. Your sudden obsession with money will make other people overly wary of even minor costs. A salesperson may not take a customer out to lunch for fear that you’re going to get upset when you see the expense report. Your MIS manager may not upgrade the computer system for fear you’ll view it as an unnecessary expense.
Here’s a cautionary tale from the owner of a small public relations agency. This individual, whom we’ll call Bill, started his agency about 20 years ago, and during that fi rst year or two, he admits he was a “maniac” about costs. Things were tight, and he was certain that if he didn’t account for every penny, his agency would fold. He would check every shipping, phone, and utility bill himself, and if any expense seemed out of line, he would confront whoever was responsible for what Bill deemed excessive spending.
Bill said it got to the point that his seven-person staff was terrifi ed to spend a penny without his approval, and so his people devel- oped the unoffi cial policy of marching into his offi ce four or fi ve
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times a day to get his approval on purchases of pencils, paper, and other minor expenditures. At fi rst, Bill was pleased that his staff was seeking approvals before spending, but one day when he came home from work, his wife asked him what he’d done that day. Bill told her, and she said, “You know, every time I ask you about your day, you talk about how you debated with Steve about whether he should pay an additional $10 for overnight delivery versus two-day delivery or how you and your offi ce manager went from one store to the next until you found a discount on printer cartridges. You’re always complaining to me that the business isn’t as profi table as it should be, but you and your people aren’t going to come up with the big ideas to make it profi table unless you stop wasting time on nickel-and-dime stuff.” Chastised by his wife’s speech, Bill stopped nitpicking expenses.
A much more effective approach is to be selective and discrete in your approach to spending. Don’t yell and lecture when some- one overspends; have a quiet one-on-one discussion about the importance of watching costs. Don’t demand to see every invoice every day in every department. Instead, be vigilant about spend- ing—but don’t be overbearing or obsessive.
Keep your concerns about overspending to yourself. While you should be careful not to nitpick about spending, it’s still important to be open and communicative about the fi nancial cul- ture of your small business. If you’re worried about the direction the business is going and have legitimate concerns about prob- lems your company is facing, the worst thing you can do is keep everything to yourself and then suddenly announce that you have to cut staff by 15 percent. This might be standard procedure in a larger company, but in a small company, this “surprise” will feel like a betrayal. In leadership development circles, transparency has become a big word. It means that leaders should be suffi ciently open about both their hopes and fears that they foster a sense of inclusiveness among their people.
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23 The Recession Test and Other Consciousness-Raising Tools
Therefore, aim to be transparent, at least to some extent.
Share your concerns that you might have to cut staff if sales don’t improve in the next year. Communicate that you’re worried about rising prices for raw materials and that some changes may need to be made if prices continue to rise. In this way, if you have to reduce spending and especially staff, people won’t be devastated by the cuts. They may not be happy about them, but they will understand why they were necessary.
Lori, the head of a catalog company, holds regular fi nancial meetings with her nonfi nancial managers. She calls them “state of the business” discussions, and she uses them both to communicate signifi cant fi nancial challenges or advantages facing the business and to answer her employees’ questions about these issues. Lori said that before she started holding these meetings, rumors spread quickly among her 80 employees whenever a problem surfaced. At one point, a top executive left the company abruptly, and everyone assumed it meant that he was aware of a serious fi nancial problem and had left the ship before it sank. In reality, the executive was simply burned out and wanted to take a year off. Lori learned that if she kept managerial staff abreast of the company’s fi nancial status, rumors were nipped in the bud. She also found that even when the company was facing a fi nancial challenge, talking about it openly helped to avoid the panicky response that rumors often produced.
This transparency is also an effective way to instill cost con- sciousness in other people. By addressing legitimate concerns about spending with a range of people in the company, you raise their awareness of major cost issues in the business. Some small business owners are reluctant to do this because they worry that people will start looking for other jobs if they get the impression that the business is in trouble. I’ve found that this is unlikely to hap- pen if you don’t adopt a doom-and-gloom attitude or turn minor cost problems into major ones. It really is just a question of sharing key pieces of information with your staff, so that they know you’re focused on controlling costs and they adopt a similar focus.
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