Let’s say your revenue is taking off but you still need some more runway. To build the runway you’re going to have to cut costs. But you have to be smart about it so you don’t kill your future.
We worked for a start-up that had raised millions and had 30 staff. They were going hard on sales but it wasn’t taking off fast enough. We saw that they were down to a 1-month runway and there was this pivotal meeting one day where we had to lay it out “You’re going to run out of money unless we do something drastic”. The executive team did what they needed to do very quickly, within a few days, we bought another 8 months of runway, so it’s possible. Here are a few tips that companies often miss:
Reduce Cost of Goods Sold:
If you are running the kind of business where your margin on each sale is lower than 40–50%, then moving this needle could have the biggest impact on your business. Examine your purchasing/sourcing practices, set metrics on the efficiency here.
Cut marketing :
Take a look at your cost of client acquisition. For many young, growing companies, marketing spend is poorly allocated since you don’t have a long history to tell you what works, so you’re throwing money away. Get expert help on this from an outside marketing consultant — and I mean one who’s managed a budget before. You’ll need to measure what’s working, run experiments, and allocate budget properly.
Cut software :
I found $23,000 once for a company that was (A) paying for enterprise software that was complete overkill for what it needed and (B) paying for a bunch of CRM users it didn’t need after downsizing its team.
If nothing else is working, cut payroll very very carefully — layoffs should be a last resort for growing companies. Do get rid of dead-weight, but keep good people if you can. It is very costly to grow a team and you’re going to have to hire new people at some point. Layoffs are also culture killers. Consider some alternatives: if it is legal in your area, ask employees if they’d be willing to take a temporary pay cut, to work reduced hours, or to trade cash for equity.