If you’re looking to run a lean, efficient business, where are the places you should and should not spend money?
Here is a simple distinction that will help you make smarter strategic choices for yourself.
The distinction is between “strategic expenses” and “non-strategic expenses.”
Essentially a strategic expense are expenses for things that concretely help you improve the current and future health of the company. They help the company reach its core goals of growth, profitability, and long term sustainability.
Non-strategic expenses are everything else.
Here are some examples of strategic expenses:
- Sales people who sell.
- Marketing that works.
- Sales systems that are effective.
- IP barriers that give you sustainable advantages.
- Research and development breakthroughs that are salable or that to profitable products and services.
- Practical outside expertise that positively impacts your bottom line (long and short term.)
- Production efficiencies that lower your real costs or allow you to increase your pricing and hence yield a high return on investment.
Non-strategic expenses include things like:
- Administrative costs.
- Most/many managers.
- Office materials and supplies.
- Any sales or marketing person or activity that doesn’t produce increased sales.
The three guiding principles when it comes to evaluating expenses are:
- Outspend your competition for STRATEGIC costs—in good times and bad.
- Ruthlessly cut NON-strategic costs to the bone.
- Repeat the process!