When and What to Cut

For quite some time I have subscribed to Seth Godin's Blog. I just read a post called "Fall into the Gap." It talks about Gap stores and the recent struggles they've been going through. Seth's post addresses the inappropriate cutbacks that the Gap has been making and he is right on.

Often times when a company is struggling, all they know to do is cut expenses. It's a nasty cycle. You become under-capitalized, cash flow begins to suffer and the owner turns to the only thing they feel they have control over, operational costs. But what is an appropriate cut? Do you cut sales people, close locations, eliminate advertising, what? When a company cuts back on their sales force or customer service, you know they are in a world of hurt and the end may be near. Sales people are the lifeblood of any organization, without them how do you retain and acquire new business? You need to identify your profitable markets, understand what you do best, market effectively, and understand the value of your key people.

I have a friend that owns a business. His one-track minded approach to revenue building is raising prices (regardless of market demand) and trying to figure out how to cut employee salaries. Declining any help that I have offered and after years of this approach, he now has the most expensive product in his market segment and continues to struggle with poor service and bad employees. Sales have continued to decline. I fear the damage that has been done is irreversible and he will never be able to climb out of the hole.

One of the most humbling things that a business owner can do is realize when they are out of their league and can't handle it any more. Once you realize that you don't know it all and you need help, you can surround yourself with people who "know more" than you do. This is when the healing can begin. Too often an owner will ride their pride into the bankruptcy sunset.

Seth said it best: "When your current strategy isn't working, doing the same thing, but just a little less of it, doesn't make a lot of sense..."