How small businesses can cut costs without sacrificing growth


Happy National Small Business Week everyone! With “economic activity projected to stagnate” for the year, according to the Congressional Budget Office, it might feel like celebrations are a little…subdued. But while many are worried about how to reduce costs to keep their businesses competitive, it’s important to remember that with a good strategy in place, the cuts you make (along with the cuts you don’t make) in the coming months can pave the way for future success.  

But how can you make sure the cost-cutting strategy you have in place is right for you? Bret Bero is an Assistant Professor of Practice in the Management Division of Babson College. His work touches on everything from Strategic Problem Solving to Disruptive Change and Business Transformation. More than that, he led his own small business for more than two decades.


Bero says that downturns can actually be a great opportunity if you make good use of it. “Most people are afraid of disruption. But instead of being afraid, if you actually embrace [it] and say, how can we disrupt ourselves so that somebody doesn't do that to us, then you'll have an opportunity to redesign and transform your business to meet the world of technology-enabled business.” That sounds great, but how do you embrace disruption and make it work for you? In this article, we’ll explore strategic cuts specifically for small businesses and how to deploy them without undercutting future growth. 

What makes small businesses different? 

So when it comes to business strategy and implementing changeshow do small businesses differ from their larger peers? “At a high level, it's the same. But at a very practical level, it's not — because a small business is like a family.” says Bero. Smaller teams can be a huge advantage in times of change, allowing for more effective communication and a deeper level of investment in the organization’s success. Bero notes that “you have to recognize that they've [employees] made a commitment to your organization and want be part of the process.”


Bero says that by their nature, your people, and the relationships you have with them are more critical at small businesses. “All businesses operate on the same basic premises and practices. But I think the manner in which you manage the business and manage the organization… is critical for getting your employees to understand and buy into the difficult, challenging actions that you have to take.


Measure twice, cut once

When you’re ready to sit down with your data, Bero says thinking strategically about cost cuttingshould start with some pretty foundational advice. Look at all your money. Start with your larger expenditures where making a small percentage cut can have a big impact. But be sure to evaluate all of your expenditures, including yourself and your management team. 


When Bero’s own company was facing a downturn he looked to himself for his first cuts and as a way to send a message to his business community. “I was the first person we laid off, right, because I had a little bit more means to get through that downturn than they did. And by doing that, they can see, okay, well, we're all in this together. This isn't just being done to us. It's being done with us.”


There are a couple of areas that Bero says are important to remember when making cuts for your small business.

Look through the eyes of your customer

Make sure you consider the impact that any cuts will have on your customers. Is there a way that these initiatives could make your business even more relevant for them? Bero says there are three strategic intents when it comes to customers: Being low-cost, having the best-performing product, and being customer intimate. Identify which one of these is most important to your mission and vision and perhaps invest while making cuts. 


Bero says that thinking about your priorities as a business can be useful when taking customers into consideration. “If your focus is going to be customer intimacy, you can do an ABC analysis of your customers. And for those that are the A customers, you can give them more support. But for those that are C customers, you can re-evaluate how you support them and perhaps move from having a salesperson call on them, to having a call center that they respond to or a website that they can order from. And that way you're reducing the cost without really jeopardizing the customer intimacy for the critical customers that you have.”

Engage employees to tackle challenges together

For small businesses, maintaining your internal relationships is of utmost importance. Even if you can’t use your workforce’s suggestions for cuts or changes, making sure they feel heard and understand what is happening is critical to your long-term success. “Your employees are part of your organization. They want to survive just as much as you do.” Bero says. “By being involved in the process, even if the answer isn't taken, they feel more control over the process.” 


Speaking on his past experience leading a small manufacturing firm through a downturn, Bero consulted with his employees on a number of ways to reduce overhead, and they elected to temporarily shift to a four-day workweek. When the company had enough volume to resume business as usual, he found that his employees preferred the four-day-a-week schedule, opting to work longer shifts to cover the workload. 


Opening the relationship to a give-and-take of ideas allowed him to realize savings he wouldn't have even considered in the long term. “In addition to getting the labor savings down during the downturn, it gave us ongoing operating costs, facility cost savings going forward because I didn't need to heat the building during that extra day off.”


Every company is a tech company (yes, even yours)

Focusing on making sure your technology is the right fit for your company is also a key place to consider when you’re making cuts. “There's not a company in the world today that's not a tech company. There is a tech component to everything that's done. And so there's this massive focus on how do we recognize the nature of the technology change and how do we move in a way that allows us to maximize the value of that.” says Bero. 


Making sure that you are only paying for what you are using, whether it’s hardware or software is also critical and can be a crucial place for savings. Bero realized this in his own company when they evaluated their tech stack and assessed ownership of some expensive pieces. “[We realized] we are only using [a particular machine] 50% of the time. All we want out of it is the data. So [we said] let's lease the machine to somebody else. Or better yet, let's buy the software as a service and get the value out of it, not the cost of the equipment itself.”

Turning challenges into opportunity

Whatever cuts you make, Bero says the main lesson to take away from a strategic repositioning is not what you do in one particular case, but what you should be doing it all the time. “There's an opportunity to evaluate; how can our operation improve from two different perspectives? One is efficiency. I want to be as efficient as possible in my existing practices. But the second is effectiveness and […] changing the process to meet that customer need. If you're not making those changes, particularly during a downturn, when you have the opportunity to think it through and figure out how to make that change, you're missing what can be a transcendental moment in your business.