Wednesday, January 20, 2010

How I See It

Spending control means open communication

By Jana Eggers, CEO, Spreadshirt.com

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Everyone has been talking about cutting costs, but the problem isn’t costs, it’s people. Taking from the old gun adage, “Costs don’t kill companies, people create costs that kill companies.”

Unless you are in a small organization or one with straightforward costs, a CEO cannot review all of your organization’s spending. You can set limits, require purchase orders and review expense reports, but you will have problems until you work on the source ­­— you and your team.

Controlling costs is not a feel-good activity. One of my dear friends said, “Working on the cost side of the equation is death; the revenue side is where life is.” Think of all the names we call folks who actively manage costs: Scrooge, penny pincher, bean counter or tightwad. The reality is that budgeting and cost control feel like dieting, and we like to eat.

As the title reads, you (alone) cannot control costs, so this is about organizational development, not personal development. Here are some often-overlooked areas for cost control.

1. Set a spending tone in your organization. My first job after graduate school was in a startup. The cost tone was “Would you spend it if it were yours?” This tone was set by one of the founders and was reinforced through expectations that everyone, at every level, with every spending decision, would have thought through this question. The more simple, clear and close to the decision point a question like this can be, the more it can be followed. The most disastrous tone I’ve seen set in an organization: “It’s in the budget.”

2. Regularly talk about costs — big and small. In order for your tone to be heard and reinforced, it has to be discussed with examples. Your team needs to feel safe starting the discussions. Remember that perspective is gained with experience. Rather than getting frustrated when an annoyed employee asks in an accusatory tone why they have to continue to save money when the company could use lower-wattage light bulbs in the stairwell, or could print the annual report on lighter stock paper, be glad they are asking. Provide opportunities to suggest small savings (like the light bulbs, they add up). Discuss the level of savings/cost consciousness needed (It’s likely that wattage and paper weight reductions alone won’t cut it). Follow up on how some seemingly unnecessary costs really are needed (annual reports are for investors, not employees). As with other situations, the best thing to do is talk about costs openly and regularly, while never expecting everyone to be happy or to understand fully.

3. Define a budget and actively live it. Too often, budgets become a box or an excuse, and stop being a tool. Just because something fits into the budget doesn’t mean the money should be spent. Get your team to review spending, not just once a month, or worse, quarterly. Use the budget in the normal course of conversation. Make sure people understand how their budget builds into another. Each decision they make impacts the rest of the company.

Studies have shown that the fear of death is not a motivator for enduring change; rather the incentive of a happier outcome gives us our kicks.

So, the final piece to this is the vision of what life looks like when costs are controlled. The vision is one of your team making the decisions you want without an outside party (your board, your investors, the bank, or a judge) making those decisions for you. You get to decide whether a trip to Aruba or a trip to the ice cream store is right to celebrate your latest launch. No one will question the decision because it is clear that it is right, based on your taking the steps above. Your cost management buys you the freedom to make your decisions at each level.
 

Jana Eggers is a regular contributor to Mass High Tech. An MHT “Woman to Watch” in 2004, Eggers is CEO of Spreadshirt.com and blogs at www.lifeonashirt.com.