Cutting overhead the smart way
I have a friend who is just about the savviest small business owner I know.
Not only does he own a very successful, multi-million dollar computer consulting business, but I have seen him many times (and appeared with him a few) on national television. Sharp and smart, astute and clever, John is loved by TV producers who seek him out for his business insights.
When John talks, people listen. I listen. And I bet you might want to listen too.
The best business move I ever saw him make was the one he was forced into at the start of what I call the Not So Great Recession (2008). It was brilliant and light years ahead of the competition.
John has a team of about two dozen employees who install sophisticated business software on their clients’ computer systems. Prior to the recession, everything was just ducky, his firm was growing at a clip of about 12% a year, bonuses were being paid out regularly, and 401(k)s were flush.
But then the stock market crashed and the bottom fell out of the housing market and John’s business hit a wall and revenue evaporated.
John was faced with some tough choices. He could close up shop and retire, as, by then, he had made and saved enough to do so comfortably. Conversely, he could fire most of his employees and run a very lean ship for a few years.
Neither option appealed to him.
John cared deeply for the people who had helped him grow his business. He didn’t want to hurt them, didn’t want to retire, but neither did he want to cut back so severely that he would essentially be starting over.
It was a classic lose-lose, no-win situation, until John pulled a Captain James T. Kirk move and saved the day.
In the best Star Trek movie ever, Star Trek II: The Wrath of Khan, the characters discuss a Star Fleet training exercise called The Kobayashi Maru that goes like this: A young cadet during training is given a simulated exercise where a civilian starship (called the Kobayashi Maru) sends out a distress signal. The ship is in the Neutral Zone. If the commander goes in for the rescue, he or she will start a war with the Klingons. If they do nothing, the crew will die.
The only cadet to ever pass the test was James T. Kirk. He did so by sneaking into the computer system and reprogramming the simulation so that a third option – a safe rescue – was possible. Though he technically cheated, cadet Kirk was given an accommodation for “original thinking.”
My friend John created his own Kobayashi Maru rescue.
Neither content to close the doors nor trim the sails, he realized he too had a third option. He could transform his business into a virtual business.
John’s thinking went this way: The only way to survive the financial storm was to severely cut his overhead. Traditionally, many companies do this by firing staff since labor is often their biggest expense. But John didn’t want to do that. His staff was his business.
What John did instead was to realize that he had other big expenses he could cut – if he got creative.
His biggest expense was running a physical office. So John decided to eliminate it. He would have his entire team work from home. He got out of his lease, closed up shop, and set about creating a virtual business. In the process, he eliminated paying rent, related insurance, phone bills, utility costs, and many other expenses related to running an office.
His team started working from home, using video chats to have staff meetings, and he communicated with them daily via email and phone calls. It worked. Within a year, even though things had stabilized, everyone liked working so much this way, and John so liked the reduced overhead, that he never did open up an office again.
He’s still in business today, everyone (and more) is still on staff, he is still on TV, and is happier, richer, and more successful than ever.
I think the lesson from John’s journey is two-fold:
1. Prioritize your team
Needless to say, you do; you would not be reading this blog if you did not get how important it is to prioritize and reward your team. But even so, the circle of business success depends on what you do with your team at this critical juncture.
You know the circle of business success don’t you? It goes like this:
A great boss takes care of his or her employees. In turn, those happy, fulfilled employees take good care of the company’s customers. Happy customers become repeat customers and repeat customers make for a happy boss. And so it goes.
2. Think different
Captain Kirk was so committed to succeeding that he ended up creating a whole new process. The same is essentially true for my friend John. And so it should be with you.
The secret here is to look at all of your expenses and prioritize. What is essential? What is not? How can you keep the essentials and reduce or eliminate what’s not?
Which expenses are which, you ask?
Heck, I don’t know, it’s your Kobayashi Maru. But I bet you can do it, and if you do, you will, well,
Live long and prosper.
Often called “America’s most popular small business columnist,” Steve Strauss is a best-selling author and senior USA TODAY columnist whose content and media appearances reach millions. Steve is also an attorney, small business influencer, and the author of 17 books, including The Small Business Bible.
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