A lot of companies need to be more profitable. They struggle to capture some of the value that they create. So they take other measures to be more profitable. The easiest of all measures is to cut costs.
The Easy Road (to nowhere)
It’s easier to push your partners for lower prices. It’s easier to put your business out to bid. It’s easier to believe that something like a reverse auction will help you make the money that you really need to make.
It’s easy to turn the thermostat down. It’s easy to turn off lights that aren’t being used. It’s easier to cut wages, and for some companies it’s easier to cut employees. And so most people try to do what’s easiest.
It’s easier to chase the bottom. Isn’t that what your clients are trying to do to you? Aren’t they seeking even greater value at even lower prices?
There’s no reason to be irresponsible with money. There’s no reason to spend more than you should. Cost cutting is the path of least resistance; it’s not the path to greatness or to growth. No one ever became great, and no one ever had a greater offering, simply by cutting costs. Unless you are simply spending more than you should be, cost cutting is a short-term fix to a long-term problem.
The road you need to take is another road altogether.
The Hard Road (to profitability and growth)
Instead of focusing only on cutting your cost, what are you doing to improve the level of value you create?
Instead of pressing your vendors for lower prices, what are you going to sell in a way that allows you to capture some of the value that you create?
Instead of only cutting costs, how can you innovate what it is you do and create even more value for your clients and your dream clients?
Instead of stepping onto the path that leads to the bottom, how can you step onto the path it’s going the other direction. How can you step onto the path to greater value creation and a greater ability to capture some of that value? What would you have to do, who would you have to be, to be worth paying more?
It’s easy to cut costs. It’s much more difficult to be worth paying more.