These Cost-Reduction Strategies Aren’t Easy, But They Could Save Your Business
April 28, 2020
Businesses across the globe are facing unprecedented challenges in the face of the COVID-19 pandemic. In this environment, it doesn’t matter if you’re the CEO of a startup or a well-established company—you’re going to have to make some difficult choices that will probably keep you up at night.
Despite the world being turned upside-down, one thing remains steadfastly true: A company’s two most important assets are its cash and its people. Without cash, you can’t have people. And without people, you can’t build a great company.
Every company should strive toward having enough cash on hand to make it through the next 24 months. It’s naive to assume that anyone will be able to successfully raise money either in the midst of the pandemic or immediately after it. So, ensuring you have enough cash or capital to see you through to the other side is the best thing you can do.
This is a time to take decisive, pre-emptive action so that you can not only weather the storm, but emerge stronger than you were before.
Based on my 41 years experience in the software industry—which includes surviving six different recession-based crises—I have three key strategies to help companies shore up cash resources as they face an uncertain future.
Freeze expenditures
Freezing expenditures is a non-negotiable strategy that should be put into effect immediately. Cash is king not only for you and your business, but also for your customers. So as you see your customers freezing their spending, you need to do the same.
Look at every part of your organization in order to implement as comprehensive a freeze as possible. The pandemic has already put a stop to events and so forth, so that’s one cost center to cross off your list.
Related: Founders, Extend Your Cash Runway by Taking These Steps Right Now
Work with department heads across your company to identify and assess all non-essential spending—then deal with it appropriately.
Reduce headcount
Of course, the primary driver of overall cost reductions is going to be head count. Letting people go is incredibly painful. These are not cavalier decisions at any time, but especially not during a pandemic. The choices you make will impact people’s lives in very real ways.
But if you can’t protect your company’s future, no one on your team will have a job. Ultimately, the goal is to sustain the company through the crisis so that you can hopefully hire back some of the people you lost.
Here are three quick tips to help manage this process:
No department is exempt
In times of crisis, no department gets a pass when it comes to reducing headcount. The bell curve applies to everybody—your success team, development team, marketing and sales… everybody.
That said, most organizations will make more cuts in sales and marketing because those functional areas tend to represent the most major expenditures for companies that are trying to grow.
LIFO: Last In, First Out
There might be an exception or two to this rule, but in general anyone you’ve hired in the last 90 days will not be as productive as those who have been on staff longer. Even if you just hired a brilliant new developer, it’s unlikely that they’re up to speed enough to be making major contributions.
Productivity is critical
Looking through the lens of ensuring your company’s survival, the most important determinant for who stays and who goes is productivity. Again, it’s tough to be purely objective, but it’s so critical to the ultimate outcome of your choices. Have department heads stack rank their teams, and then collaborate on reviewing the assessments and deciding how to move forward to give the organization the best chance.
Remember that you may even have to cut productive people in order to accomplish your goal of preserving capital. This won’t be easy, but keep the big picture in mind—hopefully, things will change and you may be able to bring some of them back. But that will only be a possibility in the future if you manage the process appropriately now.
Related: Rising Up in a Downturn: Advice From SurveyMonkey’s Tom Hale
Throughout this process, pay more attention than usual to treating people like people. People aren’t furniture. They have families, lives, hopes and aspirations. At any time, but especially now, you need to treat them like you’d want to be treated—with respect, compassion and empathy.
Take the time to explain why you’re making the decisions you’re making. Give people time to digest and adapt to their new situation. Help them understand why your choices are critical to the overall health of the company, even though they are hurting people individually.
Reduce salaries
The keys to make this strategy successful are to lead by example and to make the reductions meaningful. If the reductions aren’t high enough to make a real difference, they wind up being no more than an exercise in frustration for the people they affect.
If you’re willing to make the reductions count, apply them appropriately. Reductions of executive salaries, for example, should be higher than those for rank-and-file employees. Executives should be able and willing to take a higher share of the pain. After all, they have more at stake and more to gain in the long run.
Do the hard things now, but keep an eye to the future
No one likes to be forced into doing something they wouldn’t otherwise do. But we’re all making sacrifices now, both personal and professional.
The decisions that need to be made to ensure the long-term viability of your company are hard ones—there is no getting around that fact. But just because something is hard to do doesn’t mean it’s not the right thing to do.
This is a time to take decisive, pre-emptive action so that you can not only weather the storm, but emerge stronger than you were before.
You can do this.