The gut reaction to a shifting market or a business experiencing changes is to “shrink the business” or cut down on costs. We have been taught that the answer to change is to cut down. While this may seem like a logical decision, can you shrink your way to growth? We can look to the example of General Motors. At the beginning of the 20th Century, GM ruled the roost and sold 50% of all vehicles owned in America, but by 1988 it was down to only 15%. So what happened to them? The short answer is cost-cutting. In 1974, their new CEO, accountant Thomas Murphy questioned the company’s strategy in selling cars with different features and suggested that they sell basically the same kind of vehicle, just with different external accessories such as bumpers, fenders, side mirrors, etc., in order to cut down on manufacturing costs. Obviously, consumers did not like this and started paying more attention to other manufacturers. Just before the end of 2018, General Motors released this statement: “In a move that will save the company $6 billion by the end of 2020, General Motors announced a restructuring Monday that includes chopping its workforce by 15% and shuttering 5 plants next year.”
In a recent conversation we had with Mike Michalowicz, author of Profit First, he said something that resonated with us and many of our listeners; he said: “Cut the fat and not the muscle.” General motors obviously cut too much muscle by “cost-cutting” and in the end, it cost them a lot of business affecting thousands of people and their livelihoods.
The Fat and Muscle of your Business
Businesses generally have two types of costs that can be categorized as the muscle and the fat. The fat is where you find costs that do not produce any revenue for your business. They are costs you incur in your business that have no quantifiable benefits. The muscle, on the other hand, would be those costs that have a tangible benefit to your business. How do you know if a specific cost has a quantifiable benefit and is not fat, but actually muscle? It can be tricky because you can make excuses and justify the cost or the expense for something. For example, if you decide to rent extravagantly expensive and beautiful office space. You can justify in your head that you need this because when potential clients come into your office, they will see how awesome it is, and will, in turn, want to do business with you, when in fact it is simply a way to relieve and serve your ego since potential clients rarely come to your office anyway.
Muscle is something that drives benefit to your business. So for example, if you have a staff of 15 people, and you are thinking, “I need to cut down my workforce because they are costing my business too much money.” Assess your workforce and think again. “Person A” takes care of all your Transaction Coordination so if you cut them, what would happen to that area of the business? “Person B” does all your prospecting, what would happen to your leads without them? Your team members are an example of the muscle in your business. These are the costs that provide support or take action on tasks that drive revenue for your business. When you cut a cost that compromises your ability to serve your clientele and bring you business, then you are cutting the muscle.
You also want to gain more muscle than fat. To survive this market shift, you need to assess incoming costs and determine if they will be fat or muscle. You may believe that hiring a Real Estate Virtual Assistant is an unnecessary cost, but in reality, you may be giving yourself the leverage to grow your business. Realizing that your time is better spent working on revenue productive aspects of your business that you can handle is important. Cutting the fat also means focusing your own time on what will benefit your business the most and delegating everything else to a person or people in your team who can bring more value by doing those tasks.
A shifting market can mean the end of a business if you stick to the old traditional ways of thinking which have been ingrained in us all. To survive, you too have to shift your perspective and the way you think as well. By doing this, you set yourself up not just to survive but to thrive amidst the shift and everything it may bring.
Let MyOutDesk bring you more muscle! Leverage a MyOutDesk Real Estate Virtual assistant, schedule a Double your Business Strategy Session today and let’s have a discussion about making your business stronger in the midst of this market shift.