Arlington VA November 24, 2015
You can have both, if you choose to do so!
This is question that haunts every owner sooner or later., especially when faced with cutting costs in a downturn. Running a business is not easy--it is as simple as that. Making the wrong decision on how to proceed can be a disaster. But, there are things you can do to avoid that disaster--if you take the time to think them out carefully, and not, as the proverbial saying goes: "Put your mouth in motion before you put your mind in gear".
Lets look at both. Profit, the bottom line, is what determines if you will succeed and stay in business or go under. While you can continue to exist for a short time 'in the red', there is a point along your monthly financials that it becomes obvious, if you do not do something different, you will fail. That may mean reducing costs, either through finding cheaper suppliers, reducing employees, reducing benefits, or finding some investor willing to stick with you for a period of time, or even for the long term. All of these can reduce your costs against income.
Reducing costs against income may not achieve what you expect it to achieve--especially where your cost reductions affect the income. Let me give you several examples.
Would you, as an owner or a restaurant or small store, with several employees who are well-liked, competent, and bring in the customer base, reduce their hours, or replace them with less-costly employees?
Would you tell your supplier that you want to replace high-selling stock items with lesser cost items (Which may be already on your shelves but not selling well) and still expect that people will shop in your store?
Would you consider a 'bait-and-switch' situation where you promise something, and then claim the item(s) are not in stock, but you have higher-priced items available?
Would you tell employees to cut the quality level of your products? Take a deli that offers a broad selection of sliced meats. Would you tell your employees to slice thinner, getting more from the bulk item? Would you tell your employees to cut the amount of ingredients, on the hope that your customers simply do not notice?
The answers to the questions above will tell you how important you believe achieving your desired bottom line profit means to your overall outlook.
Then there is your reputation to consider. Look at the questions again, and this time consider if your customers find out that you are doing what is described, and they do not like what they see. if and when they do (And customers ALWAYS eventually find out what you have done), what will the knowledge do to your reputation? What will any damage to your reputation do to your income, and your bottom line?
Warren Buffett has said many times that creating a reputation takes years, but damage to it can ruin your reputation literally in minutes. It will take years to improve it, and former customers will eventually let everyone they know about what they have found. There is often a ripple effect here.
So, we return to the original question--What is more important, Profit or Reputation? I will argue the answer is BOTH. Planning and thought can design solutions that preserve your reputation, while improving your bottom line. i often tell my restaurant clients that reducing menu items, and, concurrently reducing inventory--while retaining the quality of base ingredients--produces results that please customers while reducing the variable costs. Instead of reducing employee hours, give them inducements to bring their customers in more often.
I buy a lot at Staples, as does anyone who needs office supplies. it might not be Staples itself, it might be another firm, but the occasional discount to bring in more business; the specials well down in price on brand name items, and the other little benefits of being a valued customer make it worth coming in a little more often, and thinking about them as soon as you realize you need something. At its heart, simple marketing "The personal touch" may be all it takes to improve income, reduce the costs squeeze, and maintain a good reputation.
Variable costs have variable solutions--it takes a bit of thinking, but it is worth the effort.