A book titled “Double Your Profits in 6 Months or Less,” which I have not read, had a section posted on Twitter.
It discussed strategic and nonstrategic costs.
Explained briefly, a strategic cost is an expense that adds to the bottom line. Examples would be advertising that works, salespeople, R&D that you can commercialize.
A nonstrategic cost is a cost that is considered “necessary to run the business” but doesn’t add to the bottom line. Rent, administrative expenses, clerical support, middle management, lawyers, and computers fall into this bucket.
This is hardly the first time a concept similar to this has crossed my desk. Essentially, if I’m writing a check for something, is it going to make me money very soon or is it going to pay for “other stuff.”
Save management, because a great manager can make you plenty of money, the world has endless opportunities for “other stuff.” Assistants, project managers, lawyers, SaaS, average managers, “let’s see how it goes” marketing initiatives, coaches, and moonshot ideas are all “other stuff.”
In easy economic times, it’s easy to spend on other stuff. Time becomes scarce, so you hire an assistant. Companies are growing faster than yours, so you spend more on marketing or management. Or, you are marketing and management, so you hire project managers so that you can spend more time on marketing.
In hard economic times, it’s critical to cut that spending. To quote another book I haven’t read, “What got you here won’t get you there.” In hard economic times, when the belt needs tightened, “other stuff” needs to be reduced as much as possible.
For entrepreneurs, the good news is that most competition goes away during hard economic times. The remainder of the competition that doesn’t go away gets scared, they baton-down the hatches, and they enter survival mode.
I’ve already seen this in my world. As tech enters its third consecutive tough month, companies are starting to shut down, albeit quietly. Over 150,000 people have been laid off, with many more to come. While a recession isn’t guaranteed, I’m planning for it to happen. If it doesn’t, then my feeling is that these measures will be a good exercise in austerity and reprioritizing our customers over all else.
My goal during this recession is to be a cockroach. My strategy is the following:
- Identify nonstrategic spend
- Cut as much of it as I can
- Repurpose two-thirds of that money for survival
- Repurpose the remaining third to be strategic spend
My strategic spend falls into two categories:
- Existing Customers
- New Customers
I’m about to spend 2.5 weeks traveling to see customers in the US and Canada before I head back out to Colombia to be a digital nomad again. Then, I’ll be back in March, when plan to see most or all those clients again. In a world where everyone is conserving costs and headed to Zoom, I’m headed in-person. This falls into the Existing Customers bucket.
I’m also about to start marketing and telling my story more and not less. I’ve always hesitated to do that, as I didn’t really want people to know me, but in a world where it’s economically tight and people need a new source of creativity, inspiration, or intrigue, I’ll shoot my shot.
My purpose for this blog post is not to gloat or say “I’m zig-ing while everyone else is zag-ing” but to document my strategy. I’ve never lived through a recession in my professional life before. If this works, you’ll certainly know, and if it doesn’t, I’ll do a postmortem.
As I spend more time with my clients over the next few weeks, I’ll probably do this exercise with them as well. It was a great thinking tool for me, and I think it will be for them as well.
Thankfully, AI, SaaS, and business process automation are tools Teammate AI uses to reduce nonstrategic spend. I am betting they will create the stable foundation for weathering any economic storm.
Thanks to Mom, Dad, and Shannon Waller for reading early drafts of this essay.
Evan Ryan 