Is it time for your company to stop cutting costs?

Originally published on bizjournals.com

For many US businesses, one story has played out repeatedly over the past several years: lower revenue and higher earnings. Investors may cheer the short-term results, but it's unsustainable over the long run. Eventually, the cost-cutting must end, and value must be created.

For any business owner, the opportunity to cut costs is a constant obsession, and the slow economic recovery we've been dealing with just makes cost-cutting an increasingly urgent concern. While cutting any unnecessary cost is good for a business, long term, sustainable value creation depends on constantly renewing and demonstrating a business's value to existing and potential customers.

Managers must evolve their business plans to meet customers’ changing needs. Every business, if it wants to grow, needs to identify how customers’ behaviors change and how this creates new markets—large and niche—that are as yet untapped. This goes for companies large and small.

Are you missing new opportunities?

It is crucial for businesses to understand how they can leverage their customer’s additional needs to produce new revenue streams. This can be done in many ways. It may mean offering more services, tailoring existing services to further serve customers' needs, or adjusting pricing tiers in a way that makes the product or service better for customers while augmenting the business’ earnings potential.

At the Argyle Executive Forum in 2009, I discussed the need for companies to leverage existing capital to create new business opportunities. These priorities are even more pressing today. Instead of cutting costs to boost earnings, businesses should evaluate untapped markets by bringing a fresh perspective to their existing business models.

Bringing the product to market

You and your business need to completely understand its entire supply chain, from production to delivery to service, before embarking on an initiative. This is why it is so important to leverage and build on existing business practices. Market experience can guide you, and make it possible to address the market with your new product or service quickly without sacrificing quality or introducing unnecessary friction into the process.

Some friction will arise—it always does. Fortunately, a disciplined focus based upon institutional experience can minimize risk and keep you ahead of potential problems. When you leverage your existing business model, you can apply the lessons you've learned in the past to your new venture. If it's entirely uncharted territory, try to learn from the mistakes and successes of the most relevant businesses. That is one of the cheapest and easiest ways to avoid foreseeable mistakes and turn those lessons learned into success.

Identifying core competencies to drive product or service conceptualization is the first step. The next step is identifying potential challenges in the design, production, and distribution stages in advance of constructing the business model and go to market plan.

The new economic environment has made margins thinner, competition stronger, and profitability more difficult—but by leveraging your existing intellectual capital, you can identify new opportunities, create value, and bring new products to new niche markets faster and more successfully.

By Geoffrey Rochwarger