INDUSTRY PROFESSIONAL

If I Knew Yesterday What I Know Today

Although I work in software now, I oversaw the marketing for a manufacturing company in another life.

We made ridiculously simple products that had jaw-dropping results; one for large spill remediation and the other a peat moss alternative. The core product was a 100% natural, green, waste product of the coconut industry in third-world countries. The tests we would run on both products showed a significant value over competing products. Our story was phenomenal, we had vibrant, exciting brands, we went to all of the industry events, and our brand names were spreading quickly. We soon had other companies jumping in to compete with us, but there was so much opportunity, that for the most part, we were more friends than anything. And, as the saying goes, “Imitation is the sincerest form of flattery.”

In the beginning, our Principal put millions into the success of these companies. He wanted the best processing equipment and the nicest facility. Spending other people’s money is fun, so we were happy to oblige. We searched high and low for the best of everything from brooms to processing and packaging equipment. We knew the bank would come calling. We were X Company and Y Company, and the markets love us. Our products outperformed competing products and we outperformed their teams in every metric.

Meanwhile, our competitors were buying finished products and shipping them to strategic storage facilities all over the United States where they paid for space by the pallet. They had small offices and ran their payroll on a shoestring.

They had nearly no fixed cost. Their product was inferior and everybody knew it, but they were able to sell it for significantly less and keep more profit.

When the break from servicing the debt came to an end, our prices necessarily soared beyond what the market was willing to pay, because we had to pay for our facility and its equipment.

Fixed costs lead to our quick demise and these businesses failed. Horribly.

When our Principal pulled the plug, both businesses sold for pennies on the dollar. Knowing that one of our customers had a better plan for running the businesses was tough. Clients understood what we refused to see. Fixes costs were killing our business and factoring those in, we could no longer survive.

When the world came to a halt earlier this year, many were driven to their knees, begging for mercy as sales suddenly dried up. Across the board, the companies with the lowest fixed costs were the ones who were able to keep the doors open.

As this lifestyle-limiting experience continues, and as the threat of another shutdown looms, lowering our fixed costs could mean the difference between keeping our doors open and having to close. There are many fixed costs beyond our buildings, our workspaces, and our payroll that we should consider. In “certain” and uncertain times, cutting fixed costs or converting as many of them into variable costs as possible will be a significant benefit to our businesses.

An area where we strongly advocate for converting fixed costs to variable costs is in the prices we pay for software. We looked at every piece of software we use and asked ourselves the following questions: Are we paying monthly fixed costs for software for which we are not getting every ounce of value in return? Are we paying significant amounts to software companies that are unwilling to change with us, to tailor software that aligns with the way we do business? Have they had the foresight to convert their model that grows with our business? Are these software companies pinning us down to yearly (or longer) contracts? Is there support above and beyond what is expected? Do they provide us with a way to offer suggestions and upvote/downvote other suggestions? Do they take our needs as seriously as we do, or are they willing to ignore us, while taking our money? Are they willing to work with us if we face issues such as ones we’re experiencing worldwide? Are they willing to take risks with us and only make money when we make money? These questions revealed a lot about the various software applications we use and we made some significant changes as a result.

Take a look at which software you are using and ask each of the questions above. If you cannot answer in the positive, there is an alternative out there to which you can. A few thousand dollars in fixed software expenses every month could mean the difference between keeping the doors open or closing them. It is a tough model for most software companies to get behind, but it works and it’s better for the customer. Questioning every fixed cost works the same way.

In the end, the company that bought my former company is thriving. I drop in occasionally to see how they are doing. The space that once held all of the fancy equipment we had bought was empty and clean, with the exception of about 100 pallets of finished product labeled to go out the door.

One of the owners looked at me sheepishly and said, “We sold all of that equipment we bought from you and we now just have our supplier make the product for us and ship it to us as a finished product.

It increased the price of our shipping, but that’s a cost we can control by the amount we order. Other than the space it takes up in this old warehouse we’ve owned outright decades, we have no other fixed costs.” I laughed as I told him that I was in no way offended, that I felt he had made the right move, especially as they too faced the effects of COVID-19. I left regretting not doing what they did from the start.

This article originally appeared in the January / February 2021 issue of Security Today.

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