In the wake of the Thanksgiving weekend, this post could be about something else. But I’m talking about getting a handle on your company’s spending.
A number of our portfolio companies have recently reviewed their spending (largely without any prompting from their board and investors!) and have concluded that things got a bit out of control. It is amazing how easy it is to take costs out of your business after two or three years of hypergrowth where the focus was on hiring, growing, expanding, and retaining the team.
In many cases, these efforts to reduce spending have been done without impacting headcount. There are a lot of vendors who can be renegotiated, replaced, or done without. In other cases, companies let attrition happen without replacing everyone. And in other cases, companies choose to part with folks who are not working on things that are truly critical to the business. In all of these cases, our portfolio companies have found that they can continue to hit their goals with a lower spend. That, in and of itself, is an important realization for an organization.
The thing of it is that most employees appreciate it when these hard decisions are made. They run their own personal budgets and understand the concept of tightening the belt too. They feel better when their employer is making hard and important choices. Many managers worry about the signal they are sending when they go through belt tightening. It can be a negative signal if it isn’t explained properly. But it can be a very positive signal when the proper context is placed around the spending cuts.
When the business becomes profitable more quickly, when the cash runway extends by a year or more, when the budget is no longer stretched and new initiatives are now possible, the team understands the value of belt tightening and embraces it as much as the investors do.
If you’ve been a growth spurt for the past few years and have not taken the time to do some belt tightening, it might be a good time to do that.