7 Smart Ways to Trim Your Company’s Budget
These penny-pinching times are the perfect opportunity to reassess how effectively your company dollars are being spent. Here, seven smart entrepreneurs, including Tony Hsieh of Zappos.com and Eric Ryan of Method, share some smart tips on how to cut costs.
Piggyback on Someone Else's Marketing Efforts
"You don't need big budgets or expensive promotions to get publicity," says Eric Ryan, co-founder of Method, the chic San Francisco-based consumer products company that had revenue exceeding $100 million in 2007. "One of the most effective things you can do is participate in established events. Here's an example: Last September, 70 cities across the nation celebrated Parking Day, an event to raise environmental awareness. We set up mini golf courses in San Francisco and Chicago. We didn't have to shell out money for a sponsorship. We did this ourselves and exposed our brand to thousands of consumers."
Make Saving Money a Game for Workers
"We just launched a program called Action Figures, in which we encourage our employees to pursue crazy-ass ideas," says Robert Stephens of Geek Squad, a Best Buy subsidiary based in Richfield, Minnesota. For example, "we posted a message on our company wiki saying something like, 'Hey, we have this idea for a new software app, but we are not pursuing it because the cheapest quote we could get is $50,000. Anyone think they can build it for $1,000?' We received several dozen responses in a couple of days and we've completed more than 10 prototypes as part of the program. It's not just about cutting costs, which this does, or producing better products, which this also does," Stephens says. "It's about encouraging people to aspire to things beyond their current timecard." Geek Squad had sales of $1 billion last year.
Be Brutally Honest
"Take an honest look at what revenue is likely to do over the next year. Then, reduce it by 10 percent and adjust your business plan to that revenue number," says Keith McFarland, founder of McFarland Strategy Partners, and the author of The Breakthrough Company (Crown). "Don't take the coward's way out by making across-the-board cuts. Figure out where your core leverage points are in your business model and make sure these are adequately funded. Cut anything that is not in the 20 percent of the activities that generate 80 percent of the results. Once you have scoped the business, get your folks together and talk to them honestly about the environment ahead and what you are doing to address it. "
Make Good Use of All the Free Software That Exists
"A recession is a great time to ask yourself, Why am I spending so much money on IT?" says Paul Graham of Y Combinator, a Cambridge, Massachusetts group that funds high-tech start-ups. "If you go to a typical Silicon Valley start-up, you will find that its IT expenses consist of laptops, Internet connections, servers, and nothing else," Graham says. "It uses free Web-based software like Gmail. Large software companies spend huge amounts of money sending very convincing salespeople to come and sell you their products. But most companies don't need to pay $1,000 a head for software."
Simplify Your Product
"In times like these, it's smart to think about de-featuring: dialing back the performance of products or services to make them cheaper and simpler," says Scott Anthony, CEO of Innosight, a Watertown, Massachusetts consulting firm that helps businesses grow through innovation. "As a management consulting company, we focus on full-scale projects that cost clients hundreds of thousands of dollars. The costs to us are mostly people: A typical project requires three to five consultants working for several months. But when we started out, our core business was workshops. They were far less resource intensive than our current offerings, lasting just one or two days and requiring one or two people to stage. Now, we are looking at bringing back those workshops. We already know how to do them, and we can hit an attractive price point of less than $100,000." In 2008, Innosight had $12 million in revenue.
Pay Employees to Quit
Midway through the first month of training, Tony Hsieh, CEO of the Las Vegas-based shoe-selling website Zappos.com, offers employees a $2,000 bonus so long as they quit the company. The goal? Hsieh wants to maximize the efficiency of payroll dollars by getting half-hearted workers to move on as swiftly as possible. "We want people here because they are passionate about customer service and because they like our culture," he says. "We don't want people who are just here for a paycheck." Zappos grossed a staggering $1 billion in revenue in 2008.
Move customer service to e-mail
Richard Thalheimer, founder of the great '80 retailer The Sharper Image, thinks it's time to say goodbye to phone orders. "In my new company, we have eliminated phone ordering," says the San Francisco based entrepreneur, referring to RichardSolo.com, the online gadget retailer he launched in 2008. "Customers can't buy over the phone even if they want to. Providing customer service over e-mail is not only cheaper--it's more efficient. It's hard to monitor phone calls, but with e-mail, you can quickly read all the customer comments."