In the world of small business, every dollar saved is a big win. But with limited time and resources, where do you focus your cost-saving initiatives? I’ve worked for start-ups and smaller companies who are rightfully very cost-conscious but did not have the correct approach, that their efforts cost them more money overall. To maximize any company’s efforts there are two ways managers should focus on, value and data.
Looking to find cost-savings without thinking about the value of a process, thing, or resource brings a simplistic way of lowering costs. One of the companies I worked for refused to buy managers, who are often traveling or in meetings, work laptops.
Therefore, they print stacks of paper prior to meetings or not have information at all when traveling. The logic was, laptops are more expensive than computers and they didn’t want to spend more than what they had to.
However, the one-time savings of buying a laptop is greatly outweighed by the savings a manager could save by having accurate information and/or not having to go back to their desks to find information. Multiply these scenarios to a span of three to four year (a laptops’s life span) and the difference in cost saved versus value lost is immense.
I also highly suggest that you should look at the data behind the processes. In a world where many no longer value hard scientific evidence, one can still gain an advantage by digging deep into the data and gathering facts about their business, or risk being caught in a hamster wheel. The same company above did not care for data-driven decision making that most business decisions were reactionary and tactical. They are passionate about the most non-impactful cost savings such as saving on paper clips and not buying laptops. Thus, supply chain costs are high, rework costs are through the roof and employee morale is down.
It is critical, especially for small business owners to look at every aspect of their business to lower costs. But as your company grows and looks for ways to lower expenses where it could, it is just as important to understanding the difference between value over cost and the use of data-driven decision making. It is not a winning business practice to achieve a 10% cost savings on a certain item if its value is low and adds 20% or more to your overall cost. And by this is kind of analysis one can determine if they spend time running reports and getting their hands dirty with data. Which is the best starting point to focus your limited time and resources.