Tough economic times, like the recession we experienced a few years ago, create a sense of scarcity. People and companies both believe that opportunities are scarce, that money is hard to come by, and that they should be making cuts. So they work to take costs out of the business.
But cutting expenses isn’t a growth strategy. Increasing profitability on the business you are already doing isn’t new revenue. It isn’t growth.
Cutting expenses doesn’t generate new revenue. It doesn’t create a new customer, nor does it create new opportunities within your existing customers. Taking cost out of the business isn’t a substitute for the challenge of generating new revenue.
Removing costs doesn’t make you more competitive, and it does nothing to differentiate you in a crowded market. In fact, cutting too deeply can destroy your competitiveness and your ability to differentiate your offering.
There are good reasons to cut costs out of a business. If you are spending money at a reckless, irresponsible, or unsustainable rate, cost cutting makes sense. But this isn’t always the reason people try to take money out of the business. More often, they take money out of the business because they are fearful about their future or they are having trouble generating new revenue.
Is the challenge that is driving cost cutting that spending isn’t in alignment with what the business really needs? Or is it being done because it is easier than increasing revenue?
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