MBA1208 Must Read: Cut Costs Not Corners by Colin Barrow

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Hey O welcome to the hundred dollar business tips you can use today and every day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the $100 MBA, a complete business training and community online and Today's episode is a must Read episode. On our Must Read Episodes I share with you a book that I've read that has influenced me as an entrepreneur. I share with you some of its takeaways and why you should read it too. Today's must read is Cut Costs and Not Corners by Colin Barrow. This book, Cut Costs Not Corners is sort of a guide for managing and minimizing the cost of any business but while maintaining the quality of its products and services. That's really the important thing here. How to save some money without losing out on quality and pleasing your customers. In the book, the author offers actionable examples to teach you how to trim the fat from your budget, all while keeping your customers and your employees happy. I'll be sharing some great takeaways that I absolutely loved in this book. You're going to love this episode if you're looking to take a little bit more control of your costs. If you're the CEO of your company or the leader of the company and you are responsible for maximizing profits. Or even if you're just starting out, it keeps you aware of every cost you take on. Can't wait to dive into this one today. Let's get into it. Let's get down to business. If you take a look at businesses that were around 10 years ago or even five years ago that went out of business, chances are it's not the idea. It's not because they didn't make enough money. It's because their costs were way too high. Now, for a lot of us who are just starting out, it's kind of hard to imagine, but costs just kind of creep in and they add up over time. Now what this book does Today's Must read Cut Costs Out Corners. It teaches you how to be vigilant about cutting your costs and making sure you have a trimmed budget. The author Colin Barrow is an author of over 30 books and this is one of his most popular ones because it's become a guide for a lot of people to remain profitable in their business. And that's how the book starts out. The key to profitability is cutting costs, maintaining the quality of your product, but making sure you're not spending money where you shouldn't. I talk about this all the time on the show how the fastest way to be profitable is to make sure your costs are low. You're making more than you're actually spending. The book starts out by defining two major types of costs or two main types of costs that you're going to be working with. 1 fixed costs and the other is variable costs. Fixed costs are independent of the level of your company's production. So no matter how many units you sell, how many customers you have, how many sales you make, these fixed costs don't change. This is like your computers, your desks, telephones, Apple, any other like unlimited plans like your phone lines. But fixed costs can also be certain things like rent or insurance. No matter how well your business is doing, these costs don't change. The other cost is variable costs and this depends on the level of production that your business is doing, how many customers it has. If you have a hundred customers, you may just need one customer support agent, but if you have a thousand customers, one may not cut it. You're going to have to increase the costs that you spend on customer service, especially when it comes to hiring agents. But examples that he gives in the book are like materials, packaging, storage is obviously if you're selling physical goods. But the important thing here to remember is there are two main kinds of Costs fixed and variable. Now he mentions in the book, you could reduce costs by making sweeping cuts, but this would likely lower the quality of your products and services. And that's not what we want to do here. We want to make sure that quality does not suffer. An example is if you decide to save money by cutting your customer support team, you're likely going to face some very unhappy customers. They, they're going to have long wait times and they probably are going to feel like you're not taking care of them. However, wisely, cutting needless costs will both increase revenue and maintain quality. He gives this great example of Ikea. The founder of Ikea built his 235 store empire through simple cost cutting mechanisms which left quality intact. One strategy was to sell unassembled furniture. See, IKEA thought differently. Other furniture stores were selling furniture completely assembled. But by selling furniture that's unassembled, it saves space, it requires less time to manufacture, and it actually requires less staff to actually serve those customers because it's self serve. So this is a great example how you can look at your business differently and how you can change the model of the way you do business and how you serve your customers. So the quality is still high, but you're cutting major costs because you decide to offer a different type of service, a different type of offering to your customers. Further in the book, he talks about how less is more. He mentions that new entrepreneurs are guilty and prone to be overexcited at the start and they end up spending more money than they should, more money than they have really. While this mistake is a common one, it can seriously cripple a business before even gets off the ground. So it's really important to understand cost management from the start when you're starting your business. He mentions that space is a major expense and a prime target for cost trimming. This is where you can save a lot of money. When we say space, we're talking about storage space, where you store your products, your items. If you have E Commerce store. I remember when I had my E Commerce store, it was clothing and space and storage was really expensive. Inventory was one of my biggest expenses, storing the inventory, especially with clothing, because hey, believe it or not, you need to have climate control to make sure the clothing doesn't actually go bad. Clothing goes bad actually, so that's even more of an expense. But let's take it a step further. What about your team? Do you need a huge office for your team? What if you introduce making it optional to work from home and maybe incentivize them by paying their Internet connection at home or something like that, or going completely remote, you're going to save a huge monthly cost on rent for your office, let alone all the other expenses like utilities and all the little things you have in your office like coffee and tea and all that stuff. He mentions hot desking or using a coworking space as a great way to cut costs. He also talks about maybe you don't need space for everybody in your office all the time. There's an example in the book of Stocks, a UK company that manufactures sewing machines. They have a sales team, about 10 people, but they don't need space for 10 people in the office. For the sales team, they need about six. So they only design about six. Why? Because employees spend 60% of their time outside on sales appointments, so there's never really more than six salespeople in the office at the same time. What else does Columbar recommend to cut out other than space? He says any activity that's not central to your business should be tested. If it costs more for you to do internally then externally, then you should outsource it to someone else who could do it for cheaper. This could be manufacturing, this could be packaging, this could be accounting. This could be somebody running your Facebook ads. Take a look at how much it costs you to do this internally, time and money, and compare it. If you outsource it to an agency, outsource it to somebody else who only specializes in that, and therefore your quality is going to be amazing and your costs are going to be less because you're not paying a salary and benefits and all that stuff. You're paying a service. And he says, though, beware, a lot of people don't make this step to save money because of the sunk cost fallacy. This idea of sunk cost means that, hey, you invested all this time and money into training certain people to do a job, or you spent all this time and money to, you know, start manufacturing your product in a small factory or warehouse and you think, okay, I spent all this money, I should use it, even though doing it myself is more costly than outsourcing it. No, instead of wasting more money, outsource it and go with a cheaper option. The past of the past. Don't worry about your sunk cost, you're not going to get it back. In another great chapter in this book, he talks about how it's so essential to turn capital into products and then back into capital to have a high performing business that's essential to capital cycle. You start out with Some money, you create a product or service, you sell it, you take the profits from there and you create more products and services. Why is this so important? Well, because by keeping your product every minute, you keep it every day, you keep it on shelves, in warehouses, even digital products. Because you're paying server costs, right? Every day you don't sell that product, you're paying server costs. But this is more essential when you have physical products. Every day you have a product on a shelf, it's costing you money, it's costing you time. So you want to get rid of it as soon as possible, take that money and reinvest a new product to sell again and again as fast as possible. He gives the example of Walmart and the reason why they're so profitable is because their stock storage is two and a half times less than the industry average. That means they have a very fast cycle of getting rid of their stock. That's why they're super aggressive on negotiating great deals with their customers, even if their profit margins are a little bit lower. As well as suppliers, this is why a lot of people allow people to buy now and then pay later. You ever see that on websites or e commerce stores where it's like, hey, you have 90 days to pay or they give a payment plan or they even do this with suppliers. They have a contract where they have to pay within 90 days of delivery. You might be thinking, wow, they're collecting money pretty late. Yes, but they want to get it off their shelves as soon as possible so they can get more product in. And as that cycle keeps going, that 90 day thing, if they do this every day, they're getting money every day coming in. Another way to really maximize the power of your team is to somehow to use your profit margins to motivate them. This is a really good strategy for a sales team who directly impacts the profits. So if you have a sales team or sales members or even one salesperson, if a portion of how they get paid is how profitable you are, how much money you make, they're gonna try to be as efficient as possible and bring as many sales as possible and get rid of as much product as possible because their take home their check is gonna depend on it. But you can also do non financial incentives for the whole team. Like hey, if we hit our targets, we're going to do a party. You could do this with customer service. If we hit our target for churn, lowering our churn customers that you know that leave us, we can throw a party, a pizza party, or if you hit a target for the whole year. We're going to go on a trip together or a tree or something like that. This allows your whole team to feel accountable for the profitability of your business. Because after all, if your business is not profitable, we all are out of a job, right? No one has a job if you're not profitable. So you got to keep being profitable and make sure the team understands that's a part of their job. In whatever they do, whether they're in HR or customer service or marketing, they can play a role in making sure the company is always profitable.

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A couple more points I want to share from this book. Cut Costs on Corners One of the things I really liked about this book is it kind of gave like a warning sign. It kind of said, hey, when your business is in a crisis, you know, God forbid that happens where like, you know, we have to do something drastic to save the business to stay alive. The first thing they're going to do is cut costs, right? That's the first thing you're going to do. This is where major layoffs come in, all that kind of stuff. And he says you can avoid all this if you plan accordingly. You can avoid layoffs and major cuts if you're making smaller cuts and being more efficient throughout the lifespan of the business. So if something major happens, an economy crashes, something's going on which greatly affects your business. You're not going to be in crisis mode. You can mean just in less profitability mode by making sure your costs are low and your profits are high. You basically plan for maybe the inevitable. You know, all businesses will struggle at some point, so you're kind of preparing for just in case something bad happens. It kind of says, you know, cutting costs is like your insurance policy to make sure that you're staying afloat even through bad times. To sum up, I really, really think this book is essential to read. Cut Costs Corners by Colin Burrow is a great book to get your mind around how to have less stress in your business by staying profitable even when you're just getting started. Pick up the book and thank me later. Thank you so much for listening to the $100 MBA Show. Hit subscribe on whatever you listen to to make sure you get all our episodes automatically right to your device so it's there ready for you when you're ready to listen. We're on Spotify, we're on Overcast, we're on Stitcher Radio, we're on Apple Podcasts, we're on Castbox, we're on them all. Just hit subscribe on whatever you're using right now to listen to the podcast. All right, before I go, I want to leave you with this. The dollars and cents of business sometimes is just not sexy. It's not fun, but it's a lifeline. It's really what keeps your business alive. So you got to really prioritize it. You got to really make time for it. You got to keep track of your costs. Even a simple spreadsheet Google Sheet is going to be a lifesaver so you know exactly what's coming up and what you can and cannot afford. Thank you so much for listening. I'll check you in tomorrow's episode. I'll see you then. Take care.

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