When you are running a young company, everything matters, especially controlling your expenses. As Bill Spruill once said to me:
?…you can?t control your revenues, but you can control your costs. And a dollar saved is a dollar that goes to the bottom line.?
Wise words that are usually forgotten when you succeed. This is because, as your business grows and becomes more successful, you will inevitably spend more on things that you may not really need and on wants more than on needs. In a phrase, “success masks the leaks in the ship”.
Businesses typically have good times and bad times. During the good times, splurging happens. Instead of staying at the Hampton Inn, you stay at the Hilton. Instead of using the same computer for several years, you buy the latest shiny MacBook Pro and pay a monthly subscription for a Mifi card that you might use twice a month. Instead of flying the red-eye back home to spend less on travel, you stay for an extra night at the hotel. All those extra expenses? They don?t affect you, or at least you don?t feel them. But they really do affect you.?You just don?t know it until your business goes through a bad cycle. Every company goes through them, but not all of them survive the bad times.
I am re-learning this lesson again.
My First Downturn
Back in 1998, my company went through a bad spell. It lasted nearly 6 years. We basically dug a huge hole of debt by expanding into capital-intensive lines of business (like refuse management and packaged wastewater treatment plant installations), and it took forever to crawl back out from under it. But we did it. And we did it through the control of costs while seeking out better revenue streams. Cost control was the key factor that sustained Terraine through the tough years while we sought out better pastures elsewhere.
Cost Control Defined
So what is cost control? It?s not some nebulous MBA-speak. You don?t need a hot-shot business school grad to manage this for you. It?s simply watching your nickels and dimes. That?s it. Do you really need that Pitney Bowes stamp machine, or can you live with licking stamps for awhile or using a free online bill pay system? Do you really need to continue leasing and insuring that monster printer/fax machine that can collate and staple documents? Or will a $250 Brother multifunction printer/scanner/fax machine work just fine? Do you really need the latest Cisco VOIP phone system, or can you get away with using Skype and Skype-In virtual numbers? Do you really need to go to that seminar in San Francisco, or can that wait for next year?
When things are tight, all of these things are clearly obvious.?But when things improve, you will start to forget about this. You will spend on non-essential things. And even if you are a tightwad and aren?t inclined to spend frivolously, those around you will start asking you for things that they want but don?t necessarily need to get the job done. They will pitch the need for this or that, the importance of having a certain item or of attending a certain event or tradeshow. And you will give in. You won?t notice these little nickels and dimes until another down cycle.
My Second Downturn, and Lesson Learned, Again
Things around Terraine are tight again, and this is because we lost a huge pile of money on a NCDENR environmental contract and are also still in the midst of morphing our business model from one where our core competency was environmental consulting to one where our core competency is building software apps. It?s not easy. Our cash flow is more unpredictable now. Banks nowadays are more stringent than they have been since I started Terraine 20 years ago. They don?t like ?unpredictable?, and they don?t like change. And neither do employees used to the former core business. Building software is not cheap, either, and the timeline until you see revenue from it is long and arduous. But we are doing it. And to succeed, we have to watch our nickels and dimes like a hawk and turn unnecessary things off. It?s painful, of course, but it?s something that needs to be done.
Don?t Run Out of Cash
If there?s a single thing you need to know about running a business for the long haul, it?s this one: don?t run out of cash. Find the working capital you need by whatever means you can, and watch your nickels and dimes during the tough times AND the good times.
Don?t let success mask the leaks in your ship. Plug them up, even when you are firing on all pistons and in an up cycle. Make it a habit to save those nickels and dimes, and they, in turn, will save you from running out of cash when you most need it.