Keep Costs Variable...for small biz
Small biz often emerge with an aura of invincibility. Many have grown up in universities or business plan competitions. These environments focus on taking whatever time needed in making things perfect……because they can. It is not a competitive and commercial landscape. The commercial world is all about competition, speed to market, and the flexibility to adjust business plans on the fly and to pivot when necessary.
A pivot is not an incremental adjustment, but a very distinct and disruptive change of direction for business. It results from a fast changing commercial environment that cannot always be predicted. These types of changes can’t be predicted in a business plan. One of the most irreversible factors to change is fixed cost expenses. They don’t change and businesses are stuck with them. Categories can be ownership of real estate, long terms leases as alternative, equipment costs, and people costs. Where ever variable cost alternatives can be deployed will provide longer term flexible alternatives that can be adjusted when needed.
Examples of variable cost alternatives are:
Not owning processing equipment required when related revenues are unknown. @BareWolf Brewery utilizes a portable canning equipment line that is variable in cost as to volume produced. As revenues grow from sales of canned product, volume produced to meet sales can be increased, and per unit canning costs are reduced as volume increases. This represents an excellent example of avoiding fixed expenses that would exist regardless of volume.
@INRoof.solar has also avoided fixed equipment costs needed to shape and cut metal roofs until sales volumes increase. They will also be using a portable equipment that also ties to volume produced and unit cost is reduced by increased sales volume. A bit of convenience is sacrificed for reduced expenses.
A third would be utilizing contract employees over full time. Fixed costs are reduced and employee costs are tied to sales / revenue volumes. High benefits can be avoided until the right revenue time.
The last example is real estate costs. Do not sign long term leases at early stages when volume of sales is unknown. Both BareWolf Brewery and INRoof.solar have benefited from a flex model available @CIWorks. Tenant businesses @CIWorks have the option of leasing only the amount of space needed at that point in time with the option of expansion when revenues become proven, reliable and the expanded need is to produce greater volume.
Early stage businesses must manage expenses intelligently and as variably as possible. This is what @CIWorks is all about. Join us or contact us for more information.