How Rick Sapio reined in the biggest spender at his company: himself.

Rick Sapio keeps a sign on the wall of his office. Its message: Profit equals revenues divided by expenses. There's an upward-pointing arrow next to revenues and a downward-pointing arrow next to expenses. "One of these two things has to happen in every decision you make in order for there to be a profit. Either revenue is going up or expenses are going down," Sapio says.

The chart is a gimmick but nevertheless is important to Sapio, the CEO of Dallas-based, which provides mutual-fund advisory services and account management to its customers for a flat fee. Sapio didn't always have that sign on the wall, and he didn't believe he needed it -- or anything else -- as a manifesto. Back in 1994, when he started, Sapio never really thought about keeping an eye on expenses. He didn't have to. "I found it very easy to raise money," he says, and as the boom of the 1990s wore on and the marketplace was flush with investment capital, raising money got even simpler. Over the course of the decade, Sapio was able to raise an enviable $14 million, mostly from angels and institutional investors.

All that cash was not necessarily a good thing, Sapio admits now. "We were not accountable to being a profitable company at the beginning and hence our energies weren't focused on looking at expenses. We were looking only at the revenue," he says. Indeed, during his first six years, revenues increased by an average of 113% a year, but consistently ran in the red.

Since then, Sapio and his company have done some growing up. By 1999, Sapio was finding it difficult to raise money. Then in March 2000 came the Nasdaq crash, which hammered the mutual-fund industry.

During the past few years Sapio has made small changes in the company and himself that add up to a big difference. These days, despite a wobbly stock market, the 10-employee company has a 15% profit margin. Revenues are up 190% since 1999, and expenses have leveled off and are projected to drop by nearly 4% this year.

Sapio's first step was learning to keep an eye on the numbers. After reading that Cisco Systems Inc. closes its books every day, Sapio took up the practice at in July 2000. Now all financial transactions are entered the same day they occur, to create a real-time picture of the company's revenues and expenses. It's good discipline and surprisingly easy with today's accounting software, says Regina Lian, president of New York City's Financial Comfort, who advises small businesses on financial management.

Now Sapio gathers his top managers in a daily huddle at 4:37 p.m., just after the stock market closes, to go over the figures. Each person is responsible for updating at least one revenue item and one expense. "Every line item on our financial statement has a name next to it," Sapio says. "So if travel's out of whack, I'll say, 'Ernie, give us a report on how we can lower travel next week."

Sapio also practices open-book management, showing a current profit-and-loss statement and balance sheet to the 10 employees at a weekly meeting. All those eyes help spot potential savings. Last year one employee noticed that revenues were up but so were the processing charges for trades. Sapio negotiated a 25% reduction in fees with the outside processor.

Reviewing the numbers daily forced Sapio to get serious about sticking to a budget. "If something is not on the budget, we say no to it," he says. "If we absolutely have to spend the money, then we have a line item on our P&L statement that says 'unbudgeted expense.' And we track that number."

Employees who overspend without getting prior approval can wind up paying out of their own pockets. Just ask president Eric McDonald, who ended up covering a $300 bill for an in-house dinner that went over budget. Or Sapio himself, who hired a consultant last year in order to get some leadership coaching, even though he didn't have an OK from his executive team. Sapio figured the managers would approve the expense retroactively. Unfortunately for Sapio, they never came around. So when the $6,000 invoice arrived, it was Sapio's to pay.

Extreme measures? Possibly. But they've helped confirm the culture of frugality and discipline to employees. Perhaps more significant, such strict attention to the bottom line has opened Sapio's eyes about a general organizational liability. In most businesses, Sapio says, there's one person who wastes more money than anyone else: the CEO. Sapio cites himself as the perfect "exhibit A." used to have a branch office in lower Manhattan. "It was totally my idea, and I had my ego wrapped up in it," Sapio says. It wasn't until the office was shut down for two weeks after the September 11 terrorist attacks that Sapio realized he didn't really need it. That only confirmed for Sapio what his management team may have already suspected: rein in the CEO and you set a powerful example for the rest of the company.

On that principle, when the stock-market plunge two years ago forced to eliminate employee perks, Sapio wasn't exempt. No longer does the company pay for his parking spot, his gym, or his Young Entrepreneurs Organization dues. "Give them pay as a perk," Sapio says. It's a lot easier to do that now that the company is in the black. Although has always had a profit-sharing plan that funnels 15% of profits back to workers, only in the past two years have there been any profits to distribute.

The market crash also forced pay cuts. Sapio slashed his own salary by $20,000 for 12 months and asked employees to give up part of their pay for the same period in exchange for stock options. Of the 30 employees that Sapio had at the time, 25 responded. Savings: $70,000. "Not a whole lot," says Sapio. "Still, it gets you thinking about the company and not yourself."

Sapio also decided that some things are better done in-house. "We overspent on marketing," he says. "Probably our biggest waste item." He still winces at some past excesses, like the $400,000 he spent on television commercials in 1999, with "horrendous" response rates. Now runs only print and Internet ads, for a whopping $1 million in savings. And instead of hiring an outside agency to develop marketing campaigns, Sapio uses a media buyer, hires a designer to do layouts, and writes all the content for's ads and Web site himself. A waste of his time? Sapio doesn't think so. "Most CEOs spend more time enrolling the advertising agency in what they do, whereas that time would be better spent creating a very simple marketing program," he says.

As the business has become more profitable, Sapio has more time for thinking about strategy, which has generated even more savings. Last fall he revamped his business model, switching from direct sales to selling through large institutional partners. He also cut his customer base in order to concentrate on his largest customers. Both changes came about as a result of looking at the numbers. "We found that 85% of revenue was coming from 35% of clients," he says. "We fired the other 65% and in the process saved about 90% of their expenses."

These days, says Sapio, his job as CEO is a lot easier. "I used to spend a lot of time enrolling employees and shareholders in the vision of the company," he says. "It's very tiring. Now I'm spending time growing profit and minimizing expenses. I've learned that if I'd just stop enrolling, motivating, and inspiring, people would get enrolled, motivated, and inspired because they'd see the profit. And that would be enough to get them excited."

Emily Barker is a senior staff writer at Inc.

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