You probably can't save your way to success

Let’s say your business is not making money.  You decide the answer is to cheapen your supply of raw materials in, to solve the problem.

So you go to a cheaper A product to save $2.50, and cheaper B product to save $1.00, and a cheaper C product to save $.23 on every widget you make.

Say you save $3.73 on each widget.  That’s the most you can save.  Will that do it?  Will you be prosperous that way?

Don’t forget, now the product or service you provide your customers is made with cheap materials.  This is what you will be known for.  You’ll have the same cheap stuff as everyone else and have to compete on price. 

Will you have to lower your price by $3.73 eventually?  If so, you are back where you started.  

Will you lose market share?  This will ding you too.

I’m not saying cutting costs is not a good idea, or that spending too much is.  But what if that wasn’t the problem?

A key idea of my School of Entrepreneurship is “To set things right, you have to see things right”.

So, what if you could take that extra $3.73, maybe even add more value and spend $4.00 more on cost, and sell it for $10 per unit more because it was better?  Would it require the right branding, story, marketing, and salesmanship?  Yes but those things are either free or you are doing them now.  And if you aren’t doing them well now, maybe that is the real problem.

If you can do it, you can MAKE $6 more profit, instead of cutting your way to $3.73 savings and racing to the bottom.

Defense is cutting costs.  Do that, sure.  But you can’t defend your way to victory in many cases.  You need some offense – Innovation, extra value, marketing, and salesmanship.