Nearly every country, industry, sector, and business have been affected in some way by COVID-19. As citizens of those countries and participants in those economies, we’ve felt the impacts as well. From the shelter in place orders to risks of being laid off (or worse), there is no shortage of fear, uncertainty, and doubt.
If you are a business owner or operator, now is the time where your strategic decisions are more vital than ever before. The decision to lay off a percentage of your team, take on unsustainable levels of debt in order to survive or to sacrifice any expense to save jobs, the future of your business depends on these decisions.
In this article, we analyze a few expenses that businesses (especially tech startups) waste the most money on. Take a look at your own balance sheet and ask yourself if these line items are necessary to sustain your business.
Marketing Expenses to Measure and Cut
Sales and marketing are a line item on the balance sheet of most businesses. You read that correctly—line item, not items. It’s easy to loop these in together when looking for areas to reduce your business expenses, but in reality, they should be analyzed individually.
If you decide you need to cut your sales and marketing expenses by 25%, you wouldn’t want to cut all expenses solely from your sales team or solely from your marketing budget without understanding how each contributes to real revenue.
Just like an Archimedes Lever, big enough to move the earth, doubling down on the marketing expenses that drive results can be the leverage needed to move your business. Take a look at your marketing budget and which channels and campaigns consistently drive conversions.
For example, if you notice your efforts to drive engagement on social media is not having a meaningful impact on your revenue, consider suspending efforts and expenses on social media, reallocating those resources into another channel or strategy that is effective in increasing your bottom line.
There is a famous saying in construction, “measure twice, cut once.” We advocate you do the same regarding your cuts to sales and marketing expenses. Understand the metrics that are having disproportionate influence over your business.
Supply Chain Expenses to Reduce
One area that has been heavily impacted by the pandemic is supply chain management. Coronavirus has disrupted global supply chains resulting in shortages of food, products, and even services.
This makes every person and business reliant on those supply chains critically aware of their importance, and even more aware of ways to avoid such a heavy reliance. With delays in the supply chain costing companies money and lost business, it’s important you consider how you could limit your exposure to these problems in the future.
One strategy, for example, could be to move a percentage of your manufacturing to another market or even drop-shipping some percentage of your inventory. This can help diversify your reliance on one manufacturer or one supply chain.
We sometimes forget what life and business was like before the internet and all the innovation that followed. There’s essentially a tool (or many tools) for managing every aspect of a business and the costs associated with each can add up quickly.
B2B technology companies understand the pressures being placed on their customers today and many are willing to re-negotiate their contracts and pricing models to accommodate struggling clients. Call on your tech vendors to inquire about a price reduction, even if temporarily.
Another way to optimize your technology expenses is to look for competitive products with more advantageous pricing, although it’s worth noting you may need to invest time and money to learn and integrate the new tool, known as switching costs.
Look for bundled suites of tools that can offer a price advantage over individual products. The Google Suite, Microsoft Suite, and NetSuite by Oracle come to mind.
Salaries are likely a huge portion of the liabilities section of your balance sheet and can seem like a natural place to quickly cut costs, but there is a ton of nuanced involved when analyzing layoffs.
For one, you must understand how layoffs will not only impact those that are no longer with the company but also for those who remain at the company. Morale within the remaining employees will be compromised and they will most likely have an acute sense of fear and paranoia.
Before laying off anyone, consider alternative strategies that could save jobs and still save your business. For example, would a majority of employees consider taking a pay reduction if they knew it would save the jobs of their colleagues? If so, consider making cuts across the board, even if temporarily until business stabilizes.
Considering how you will retain your top talent could require a complete change in the compensation structure. For example, you could renegotiate salaries with your sales team to reduce base salary but increase commissions. This would serve your purpose of reducing overhead costs while simultaneously incentivizing your top performers to shine and potentially earn more. This could also eliminate some of the underperforming team members who will struggle to earn commissions.
Delegate, Delegate, Delegate
If you’ve had to make cuts to the size of your team, this likely means you will be taking on the work of others. Thankfully, as an entrepreneur, business leader, or otherwise, you’ve become skilled in the art of multi-tasking.
If possible, position yourself to be the fulcrum point of leverage for the largest amount of impact. This doesn’t necessarily mean you have to do everything by yourself. Instead, try to improve your delegation skills and give an equal amount of extra work to those still with the company.
Although it’s not perfect, it will ensure every employee is fully utilized, when before there may have been some underutilized team members. So, instead of wearing many hats, try wearing just one—your delegation hat.
Try hiring contractors and freelancers to take on the work your former employees handled, being mindful of the hourly costs of those workers but also aware of the benefits of using a freelancer compared to a full-time hire. In this situation, you are not investing in an employee’s training, 401K, health insurance, and more.
Cut Discretionary Spending
Thankfully, there are some discretionary expenses that have naturally been eliminated in the wake of the global pandemic. Business travel expenses, office energy costs, team-building off-sites, among a few.
But when it comes down to it, cutting costs to save jobs is the most important initiative. Anywhere money can be saved will provide additional runway capital for your business’s survival.
Some businesses have taken this strategy to heart and suspended some of the company-wide expenses, such as 401K matches until the financial viability of their company returns to normal.
Pivot your Business Model
Many companies will be forced out of business in the wake of the COVID-19 pandemic unless actions are taken to change the trajectory of the business. This is where the almighty pivot comes in.
Origin, a 3D printing company, for example, saw a decline in their regular throughput but quickly realized they could re-purpose their printers to manufacture COVID-19 testing swabs. This move has enabled them to maintain a solid footing financially during the crisis and has been praised by many as one of the most effective pivots of all time.
The pivot has historically been used to explain the change in operational focus within companies that fail to achieve product-market fit. Today, however, well-established and large-scale companies may find it necessary to pivot their business model as well to accommodate the new world order.
Move Towards A Sustainable Balance Sheet
If your business has historically relied on unsustainable debt and financing options to operate, you are quickly learning the downside of optimizing for the short-term. As the economy contracts, times will get tougher and these cuts may be less temporary than we initially assumed, but if your business can survive the pandemic, it will certainly come out in a better position.
Companies that do survive will be rewarded with more market share, more pricing power, and better profit margins. Leaders who successfully navigate the crisis will likely come out with a more conservative approach to financing and place more emphasis on planning and strategy.
Unfortunately, there will be many companies that do not survive. The first to go will be those who fail to act quickly to reduce deficits in their balance sheets or those that didn’t learn anything from the last economic downturn. In times of crisis, leaders must be strategic in their actions, decisive in their timing and observant in the responses.
If you want tips for other expenses you can consider cutting from your balance sheet, check out the visual below from Embroker that breaks the expenses down by Management, HR, and Marketing.