INDUSTRY PROFESSIONAL
If I Knew Yesterday What I Know Today
- By Trent Whatcott
- Feb 01, 2021
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.