Cutting costs, not people

Tue Jan 13, 2009 3:42pm EST

Stalco Construction executives inspect the development site of the $2.5-million Hicksville Fire District Station No. 2 in Hicksville, New York, in an undated photo. REUTERS/Handout

Stalco Construction executives inspect the development site of the $2.5-million Hicksville Fire District Station No. 2 in Hicksville, New York, in an undated photo.

Credit: Reuters/Handout

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-- Deborah Cohen covers small business for Reuters.com. She can be reached at smallbusinessbigissues@yahoo.com --

By Deborah L. Cohen

Businesses are smarting from the fallout of a deep recession but smart businesses are finding that creatively cutting costs can save jobs and still boost earnings.

Last year Stalco Construction Inc., a privately held commercial building firm, watched rivals cut staff amid the slowdown in real estate development. Instead of joining the herd, it rolled out a plan designed to streamline operations, boost employee accountability and bring in new business.

The strategy called for adherence to stricter project timelines, a commitment from employees to put in additional hours and join trade groups to network, shared marketing with subcontractors and the renegotiation of service agreements ranging from insurance to technology. Common sense measures such as these helped boost productivity 35 percent from November to January, typically the slowest time of the year.

"We made a decision that we could fall to circumstance or we could create our own circumstance," says Kevin Harney, principal of the Islandia, New York firm, which added four new positions in the past month. "If it meant working harder - maybe doing things differently, working outside the box - we were going to make that commitment."

Throughout the country, the layoff headlines are grim. But even with December's U.S. jobless rate of 7.2 percent marking a 16-year high, some small to mid-sized companies are determined to buck the trend, finding ways to take costs out of their operations without reducing headcount.

Their nimble size and lack of bureaucracy frequently gives them an edge over larger corporations, for whom change is slow to implement. For many businesses with a service bent whose success depends on highly trained and experienced employees, finding alternatives to staff reductions seems like the smarter long-term bet.

"It took me twelve years to put the talent in place that I have," says Harney of his the 37-man firm, which had 2008 revenues of $50 million and is banking on a 20 percent increase this year.

A MORE "GRANULAR" APPROACH

Elsewhere, similar mavericks are attempting to beat the odds. In Houston, Texas, Blinds.com, the country's largest online seller of window treatments, has installed a costly new phone system that integrates calls coming into its two U.S. call centers and gives customer representatives the ability to work more efficiently, reducing wait times, allowing for higher levels of service and improving individual productivity. Its new accounting process more closely ties customer invoices to supplier payments and has uncovered some $500,000 in discrepancies such as overcharges. Among other steps, the company has assigned a marketing representative to the full-time task of analyzing its multi-million dollar online ad program, eliminating descriptions that don't jibe with search terms used by potential customers in queries on Google and other drivers to the site, and managing bids, a move that last year saved roughly $800,0000.

The company's founder and CEO, Jay Steinfeld, meets regularly with his staff of some 80 employees to provide status reports and explain difficult decisions such as recent wage freezes and reductions in 401K contributions. So far, there has been no need for layoffs at the company, which last year boosted headcount by 33 percent and is expecting record sales in excess of $50 million for 2009, despite an industry-wide downturn.

"I'm getting much more detailed, more granular, causing everybody in the company to bring their game up," says Steinfeld. "The recession has made us not only cut costs but figure out processes that we don't need, eliminate time, eliminate money, and just make us more efficient. This has made us a better company."

Indeed, growth businesses such as Blinds.com in the past may have paid little attention to details such as turning off the lights, monitoring office supplies, or scrutinizing their vendor contracts. Bolstered by healthy top lines, they focused on momentum. When the downturn hit, it's wasn't hard to find fat ripe for trimming.

That was the case with Mimeo.com, a New York-based online printing company, sort of a sophisticated Web-based Kinkos that lets corporate customers upload and customize documents such as training manuals, which are later printed and delivered to their offices. The company, which has 550 employees and sales approaching $100 million, has seen revenue growth averaging more than 30 percent for five of the past six years.

"When you're growing that quickly, you tend not to be focused on a lot of the cost of the equation," says CEO Adam Slutsky. "We quickly found out a couple of things, small things, but it all really matters."

ELECTRIC DRYERS AND TREADMILL MEETINGS

Mimeo.com's cost controls run the gamut. They range from installing electric hand dryers in its bathrooms to reducing office cleaning services and shifting more marketing to lower-cost guerilla-style tactics. The company has also instituted corporate policy changes that include lowering the price threshold for invoices requiring senior-level sign-off and calling on staff to push for better pricing on every vendor quote.

"With a little discipline and focus, I'm sure we can squeeze things out of the equation without impacting headcount," says Slutsky, who began aggressively cutting costs at the end of the summer and has already identified savings totaling about 2 percent of revenue.

Some companies are even getting clients in on the cost-savings game. In Phoenix, Arizona, Amanda Vega's public relations firm recently asked customers to forgo the fancy lunches and instead meet outdoors or at the gym to take a walk.

"We've always been the agency that comes in at lower prices," says Vega, whose client list includes many startups, frequently green-based businesses with an environmental bent. "We've always tried to consistently stay affordable."

The reduction in entertainment costs alone saved Vega's 32-man firm some $50,000 last year, or the equivalent of nearly two entry-level positions. The firm has also tightened its travel budget, shifted to more Web conferencing and promoted increased telecommuting. So far, she says, clients have warmed to the changes; the company's revenues rose last year to more than $3 million, up from the year earlier.

"We have one client who actually dropped 60 pounds last year," she says. "He actually took our idea and started doing it with his clients."

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