You will fail. Basic cost cutting and a 20-question method.

The 20-Question Method [2.5 min]

Have you ever stumbled upon a video that made you stop and rethink your problem-solving approach? That's what happened when I watched an interview with Brian Tracy. In addition to being a successful businessman and a former successful CEO, this man has been a legend in the personal development space for decades. In this interview, he summarized his brainstorming method for creativity and problem-solving.

So, what's the secret sauce? It's called "Mindstorming," a 20-question method that forces you to dig deep into your mind. The process starts with a simple yet transformative question. To make my explanation more eye-catching, let's say you want to earn $XXX,XXX. Your question could be: "How can I earn $200,000 in the next 12 months?" Notice that it's an open-ended question, not confined to your current job or any specific method. It's about exploring every avenue for success.

Now, here's where the magic happens. You discipline yourself to write down 20 answers to this question. Yes, you heard that right—20 answers. These could range from working longer hours, upgrading your skills, seeking a new job, or even exploring part-time opportunities. The point is to write down everything you can think of, no matter how outlandish it may seem at the moment.

Why 20? Because it forces you to dig deep. The first few answers might be the usual suspects, but as you go down the list, you'll find yourself tapping into your creative reservoir. You'll start to uncover options you hadn't even considered before. It's like mining for gold; the real treasures are often buried deep.

This method is not just about making more money; it's about expanding your thinking and tapping into your limitless potential. Each answer brings you closer to the beginning of a plan. It's about breaking the mental barriers that have been holding you back and unlocking new opportunities.

And if you couple this with his ABCDE method, you'll have a solid plan. So, are you ready to give it a try? Grab a pen and paper, and let's get mindstorming!

Basic Cost Cutting Before You Lay Off People [9 min]

Economic downturns are friggin’ nasty. Lower sales with fixed indirect costs eat up your EBITDA. Managers freak out and start layoffs. Is that the right thing?

Layoffs significantly affect morale. If you are thinking of blue-collar layoffs, that’s even worse. Qualified blue-collar workers have been hard to attract and retain in the past decade. Firing them is bad business. There are a lot of things you can do before you start shooting left and right.

This is only a review of basic cost-cutting. Real cost reduction happens when you take the painful path of looking into your internal processes and identifying inefficiencies. I’ll cover that in a later article.

The low-hanging fruits

If money is tight, you should start with the easy stuff. There are inefficiencies in any company. The larger the company, the higher the inefficiencies. These inefficiencies are even higher during good times. So, what could you start cutting?

1. Do you have a car fleet?

For field employees (service technicians, sales engineers, etc.), you may charge them for using the car outside of office hours. This can be done with a GPS device installed on the car (you may need an agreement with your local union). You can limit management positions to, say, one gas tank per week.

You should also get a frame contract with a gas station chain and provide your employees with a fleet fuel card. You should also investigate selecting one garage where you do all your fleet repairs and negotiate a discount. Additionally, if your fleet is big enough, you can increase your car insurance deductible to reduce monthly payments.

For example, you have 100 employees enjoying the perks of having a corporate car that they could use in their free time, all expenses paid. Each employee is driving 1000 km/month for personal purposes. That is 100,000 km per month, which you pay gas and maintenance for. The cost per 100 km is about $15 (gas, insurance, lease, maintenance, etc). That is 180k saved per year. This could be a temporary measure until the market picks up.

You may say this is easy, but trust me, few companies do it properly.

2. Frame contracts for all

Everything that is business support (office supplies, cellphones, internet contracts, any professional services) must be put on frame contracts and negotiated as a group.

A large-cap European business decided to go for a frame agreement with Vodafone for all of their European offices - internet, cell phones, etc. In some countries, their costs went up, but in others, down. Overall, they managed to save about 30% on their connectivity costs. And that’s a lot of saving for 15k+ employees.

3. Hiring Freeze

This may be dumb, but you need to do it. Your company has a natural attrition rate (hopefully under 10%) – which means you will lose about 10% of your employees yearly (it’s usually the good ones that leave).

A hiring freeze means that you will naturally reduce headcount without firing anyone. Of course, you need to make exceptions. If you have only one financial controller per branch, and the person leaves, you must replace her. You must communicate to your organization that hiring will only be done with approvals and justification.

4. Evaluate office space needs

The COVID-19 pandemic was a paradigm shift for home-based offices. Even after the pandemic was officially declared over, many companies allowed employees to keep working from home or have a hybrid schedule. You won’t need the same amount of office space in both scenarios. Office space for a single employee can cost you 6 to 10k / year.

Let’s say you have 100 employees in your local branch. Before COVID, you had office space for everyone. But now, you allow a hybrid setup where people can work from home two days per week. If people share desks, you can save 40% on office rent. If your rent/employee is about 7k / year, you save 280k / year in office rent.

Let me put that into perspective (roughly). If your branch EBITDA is 15%, you need to sell worth 1.86m to make 280k. it may not sound like much, but savings do pile up gradually.

Remember the car gas savings of 180k / year? Now you have a total of 180k + 280k = 460k/year in savings!! That’s 3 million in sales @ 15% EBITDA.

5. Check accounts receivable and renegotiate payments to your suppliers

Take a close look at your accounts receivable, and if there is any money you have not yet received assign someone to start calling clients. You have two options here:

• The Sales Engineer in charge of the customer account should contact the client to remind them to pay their invoices. This is often avoided as the Sales Engineer usually likes to have a cordial relationship with the client, and chasing the latter is unpleasant.

• Assign someone other than the Sales Engineer to chase clients for accounts receivable. This is the “good cop, bad cop” game where the Sales Engineer is the good cop, and the collector is the bad cop.

You should also check your payment terms with your suppliers. If you have payment at 30 days, perhaps renegotiate payment to 60 days. This will improve your net working capital.

6. Check inventory levels

Often overlooked, high inventory can impact your NWC as well. The last thing you want is to leave money stuck in inventory, especially during an economic downturn. Try to reduce your inventory levels as much as possible. This is not always feasible. For example, if you have a service business, you need to have spare parts in stock to serve your clients rapidly and maintain good customer satisfaction.

If you have spare parts from different suppliers, try to make your stocks as consignment stocks (you keep the parts in your warehouse, but only pay for them when you sell them).,

Now, the nastier stuff…

7. Analyze the usage of your assets

Asset utilization is very important. You want to have 100% (or hey, even more!) asset utilization. For example, if you have 100 cars in your fleet but only use 80, you should eliminate the rest. The list can be expanded to tools, machinery, etc. Unused items should be sold, especially if it has running costs and no return.

8. Assess CAPEX investment projects

If money is tight, it’s not the right time to start doing “nice to have” projects. You must scrutinize the proposed CAPEX projects and understand what is a must and what is nice to have. You may have a manufacturing optimization project that will reduce your production costs by 20%, and the project's payback period is one year. This may be a GO. But if you are thinking of modernizing a production line with 2-3 years of life left in it, perhaps postpone that. Just make sure you maintain it properly.

9. Analyze internal processes

This is the elephant in the room. It's very tedious; nobody feels like looking into it. Therefore, it’s left as it is. Your team must closely analyze internal processes to understand if there is room for optimization. For example, I worked with an industrial company with a time-consuming commissioning procedure. It was completely overboard. They could have reduced it by 40% without impacting safety or operational reliability. They were stubborn and kept it as it was, although they complained about their costs. Go figure. I think internal process optimization is the most untapped basic of cost reduction globally. Why? Because it takes a lot of effort. But then again, the results are amazing.

10. Cut Bonuses

I hate this, but if you REALLY need to do it, then do it. You must publicly communicate that there will be no bonuses due to the financial climate and poor financial performance. You also need to back up your facts. Also, please make sure you cut bonuses because you are in deep s**t, not because you are missing 3% of your EBITDA. While contradicting, giving discretionary bonuses to your core and most important people is a good investment. Also, never cut bonuses for blue-collar workers. Without these guys, your industrial company is nil…zero…vaporized. 

11. Temporary leave without pay

Sadly, it happens. I am extremely against this but if it’s needed to keep the company running - then you must do it. It destroys morale. What I hate the most about this is that companies put 0 effort in optimizing internal processes to cut costs but jump straight to firing people or forcing them to leave without pay.

12. Product portfolio rationalization or temporary suspension

This could be good and bad at the same time. You may have products with low EBITDA and low dollar volume, but they are complementary products. Meaning that this complementary product + core product = solution. Your client buys your core product because you’re selling a solution.

Before rationalizing your product portfolio, make sure you don’t touch really needed complementary products. Killing them may kill other core products that make money.

Remember - make money not percentages.

13. Your last resort: layoffs

Managers usually jump straight to layoffs because they give quick results. But, like medication, quick results mean a lot of side effects. Layoffs have a lot of side effects on your organization, especially if they are done in an unprofessional manner. Layoffs destroy morale and can lead to a paralysis of your workforce, where productivity decreases significantly. This is the last thing you need when your organization is shaken by poor financial performance.

However, if you have no other choice, you must do it. But do it well, and keep a few things in mind:

• Open communication: You must announce that there will be layoffs and be very clear about what job functions are affected when the layoffs happen. And most importantly, you need to communicate when layoffs have been finalized. What usually happens is that companies announce that they will cut, say, 3% of their workforce. And then they start cowboy style – you hear that a controller in whatever department was “killed.” A few days later, you hear that the marketing manager in another division was also “killed.” Random people disappear every few days. What will this lead to? Workforce paralysis. That is why communication is vital.

• Keep your trades: Try as much as possible to avoid laying off blue-collar workers, especially good ones. I once worked with an industrial company that had a service business. During COVID, they had to lay off people. Who did they let go of? Their service technicians because they had nothing to do during lockdown. Bad move. When things got better, it was impossible to get new service technicians, and the business suffered. Meanwhile, HR and Marketing were full of office workers.

You will fail—a disruptive concept you will not like to hear about [2.5 min]

Recently, I read the book "Art & Fear" by David Bayles and Ted Orland. This book dives into the emotional and psychological obstacles that artists face in their creative journeys, asserting that mastering the craft isn't about innate talent but about overcoming fears and persisting through failures. 

In the book, there was an experiment by an art teacher. She divided a class of 50 students into two equal groups: A and B.

Group A was asked to take 50 pounds of clay and make the perfect clay pot. Group B was tasked to take 25 pounds of clay and create as many clay pots as possible.

A month passed, and a curious fact emerged: the group that made the most near-perfect clay pot did not come from the group that was trying to make a perfect clay pot; it came from the group that was simply trying to make as many clay pots as possible. 

Why? Because they made so many, they got better and better, inching closer to perfection with each iteration.

Sure, there have been a few genius artists like Mozart, Beethoven, and Michelangelo, but they are the rare exceptions among billions.

If, in your mind, you think you have the perfect business idea, and you just need to execute it, you're approaching it as if you need to make one perfect clay pot. In reality, the winning business in your future will likely be the 7th, 11th, or even 22nd clay pot you create.

The wisdom lies in this: quantity leads to quality, not vice versa. Yes, you will fail but fail forward. You're not really failing; you're acquiring data and experience. Life and business are iterative processes, but you have to start and keep going to improve.

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The Industrialist