SUPER MOVE #20 from the business coach – Schedule a weekly time to watch your expenses like a hawk
As a business coach, I realize that very few hawks literally watch financial numbers, but you get what I am talking about. Typically, when a business owner starts their business they are frugal out of necessity. However, over time as more and more money starts flowing in, many entrepreneurs start adding monthly expenses that are not justified by a proportionate increase in income. When you first start out in business, you hire a salesperson who also helps you run errands. Over time, you hire a salesperson who is a sloth, but because you are too busy to either train them or fire them, you hire another salesperson who also turns out to be dysfunctional. Soon your profits disappear and you find yourself frustrated and with a big staff of non-performers. Don’t let this happen to you. You must schedule a weekly time to look at all of your expenses and ask yourself if each expense is helping you to make more money or not. If it’s not, blow it up.
As a business coach, I once worked with a fitness-related business that hired a super sales guy and trainer. This guy was great at training people and at selling. In fact, he did so well that the business grew from the owner and this sales superstar to a team of eight trainers. These other trainers were never fully trained and so they did not know how to bring in new business. Furthermore, they were bad trainers so they did not help keep business either. However, they did get paid. When I sat down to work with the owner, I quickly discovered that he was investing zero time in training his new team members or holding them accountable. He was focused on trying to generate new customers when in fact, his closing percentage had gone down from nearly 90% when it was just he and the other guy to a low of just 5%. Can you imagine how awful he felt when I pointed out the numbers to him? Here he had been spending thousands and thousands of dollars on marketing and his team wasn’t even returning the calls of the inbound inquiries from potential customers or returning the customer service-related calls of his existing customers.
“Control your expenses better than your competition. This is where you can always find the competitive advantage.”
(The self-made billionaire founder of Walmart and Sam’s Club)
SUPER MOVE #21 – Seek out ways to buy more from fewer vendors in exchange for better pricing
If you are buying your pens and printer paper from Vendor X and your paper towels from Vendor Y, reach out to them and let them know that you are considering consolidating all of your expenses to one vendor in exchange for a deeper discount and better overall pricing. See if you can join a buying co-op group within your industry or if you can qualify for Chamber of Commerce or trade association-related discounts.
As a sick example, I recently spoke to an association of funeral home professionals (as opposed to funeral home amateurs) and I discovered that both you and I could save money on the purchase of good quality name-brand embalming fluid if we became a member of their professional association. I dislike myself for using this example.
SUPER MOVE #22 – Let your vendors know that you want them to compete for your business without being a jerk about it
It’s very important that you let your vendors know that you are looking for a good and fair deal with each vendor. Let them know that the pig vendors will get fat and the hog vendors that attempt to take advantage of you will get slaughtered when you switch to another, more fair vendor. It’s occasionally important to reference the name of a vendor’s direct competitors if you feel that you are not getting a good deal or are being taken advantage of.
SUPER MOVE #23 – Don’t sign any long-term contracts that automatically renew
Make sure you do not sign any standard long-term contracts provided by vendors that state you will automatically renew your contract at the end of the term. Cross out that standard language and refuse to sign.
SUPER MOVE #24 – Incentivize cost-saving strategies by team members
Reward your staff for saving money. Any time a member of your staff saves you money on a recurring expense, as a business coach, I would recommend that you make it standard policy to give them a bonus of 10% of the savings, paid out one time. Southwest Airlines has created a culture where the members of the team are so focused on cutting costs that it has become almost legendary.
When Southwest Airlines flight attendant Rhonda Holley was helping to clean up the plane by collecting all the empty cups from the cabin of the Southwest Boeing 737, she discovered that the Southwest logo was being printed on the trash bags. When she saw this, she had two quick epiphanies. 1 – Passengers knew what plane they were on whether they saw the logo on the trash bag or not. 2 – Trash bags are always immediately thrown away after use and no passengers see them again. She wrote into the Southwest leadership team headed up by Colleen Barrett to see how much money it was costing the company on an annual basis to print the logos on the trash bags. Colleen Barrett called her and famously said, “You’ve just saved us $300,000 a year. We’re not going to be printing logos on the trash bags anymore.”
SUPER MOVE #25 – Use variable based and merit-based pay systems everywhere
You want your expenses to go up as your revenue goes up and down when your revenue goes down until you know your unit economics well enough to not lose your shirt by overpaying for everything. Whenever possible, don’t pay people a flat salary. As a business coach, I recommend to pay your people based upon their weekly performance. When people get paid bonuses based upon their weekly performance, the small details matter and most people work hard to earn their bonuses. When you pay somebody a flat amount or an hourly amount, you will find them cutting corners to go home early, to extend their breaks, and to invent incredibly creative ways (also known as lying) to justify the insane pay sheets they are turning in.
Unit Economics – the direct revenues and costs associated with a particular business model expressed on a per unit basis. For instance, in a consumer Internet company, the unit is a user.