5 ms·

Why do costs get created in a company? Generally it seems that we create a cost because we think it will result in revenue greater than that cost or because we

by mrbgty 17y ago

Why do costs get created in a company? Generally it seems that we create a cost because we think it will result in revenue greater than that cost or because we think that cost will prevent some other larger cost (such as fines from the gov't). I'm all for efficiency and maximizing the revenue we gain from each expense but we've still gotta realize that when we cut costs, we're losing something that was intended to generate revenue. I've seen this happen in a large company where they cut a ton of expenses thinking they are going to be profitable (and they are in the very short term) but all those expenses were there for a reason. A few months later, revenue drops like a brick.

jbrun 17y ago
Evolution anyone? Who has heard of an organism adapting to change by cutting their limbs off? People like stability. In fact, we are predisposed (through evolution) to think that the world is inherently stable. They think that if something has been working for 10, 20, 30 years there is no reason that it should not keep working; thus, a downturn in their business is a temporary abnormality that will correct itself. Sometimes this is true, usually, it is not. Often, with new technology (internet) and markets (china), costs get demolished. A business that relied on the previous cost-price ratio simply cannot compete. Things change - usually for the better - and companies who fail to adapt, die. Their failure to recognize genuine change is their own failure and no amount of cost cutting will change an organization for the better.
- rimantas 17y ago
  Seth Godin has dropped the ball recently (imho), but talking about evolutionary angle there is one his book I highly recommend: "Survival is not enough". Somehow I get an impression that this book is undervalued. Or maybe it just me reading to much into it.
- bendotc 17y ago
  Are you saying you still have a tail? ;-)
- TrevorJ 17y ago
  "Who has heard of an organism adapting to change by cutting their limbs off?" Like this? http://www.sciencedaily.com/releases/2009/03/090325170604.htm http://www.sciencedaily.com/releases/2009/03/090325170604.ht...
  - joeyo 17y ago
    Snakes are another good example (albeit they lost their legs over a much longer time scale).
  - lsb 17y ago
    Also, grasses, which try to maintain a constant shoot-to-root ratio; if they get cut down or eaten, they drop some of their root.
jakarta 17y ago
I think it's important to look at costs as investments in the business. And if that investment will not yield a good return, why make it? Buffett famously did this over at Berkshire, where he realized that there would be no future for domestic textile mills. He took the cash flow the company was throwing off and invested it in other companies. So I think that Godin makes a huge overgeneralization, especially when he mentions newspapers. The economics of that business have drastically changed and allocating capital to keep things the way they are is probably a recipe for failure. They'd be better off using the newspaper's cash flow by cutting current costs and allocating that cash elsewhere (new lines of business)
- mrbgty 17y ago
  "I think it's important to look at costs as investments in the business. And if that investment will not yield a good return, why make it?" Can't agree more. This was my point. Look at those costs as investments and not just something you can get rid of to save money. More than likely, it's there for a reason, so please evaluate this expense as something that is likely producing revenue in some form or another. In other words, you should expect your revenue to fall if you're getting rid of some expense unless you are able to successfully reinvest that expense into something with a higher return.
- brk 17y ago
  So I think that Godin makes a huge overgeneralization You have basically just summed up Seth's entire blogging history.
  - rjurney 17y ago
    Its actually impossible to make a good point on the internet without giving someone, somewhere the ability to call it an over generalization. It turns out though, that pointing out exceptions to generalizations is the lamest comment one can make on the internet, because of course, any statement to a wide audience will have exceptions that someone, somewhere on the internet can point out. Pointing out over generalizations is like pointing out spelling errors, albeit less constructive. You can't get any traffic to your blog if you don't make generalizations, because you won't appeal to a broad, general audience. Of course, thats all just a generalization ;)

by mrbgty 17y ago

jbrun 17y ago

Evolution anyone? Who has heard of an organism adapting to change by cutting their limbs off? People like stability. In fact, we are predisposed (through evolution) to think that the world is inherently stable. They think that if something has been working for 10, 20, 30 years there is no reason that it should not keep working; thus, a downturn in their business is a temporary abnormality that will correct itself. Sometimes this is true, usually, it is not. Often, with new technology (internet) and markets (china), costs get demolished. A business that relied on the previous cost-price ratio simply cannot compete. Things change - usually for the better - and companies who fail to adapt, die. Their failure to recognize genuine change is their own failure and no amount of cost cutting will change an organization for the better.

rimantas 17y ago
Seth Godin has dropped the ball recently (imho), but talking about evolutionary angle there is one his book I highly recommend: "Survival is not enough". Somehow I get an impression that this book is undervalued. Or maybe it just me reading to much into it.
bendotc 17y ago
Are you saying you still have a tail? ;-)
TrevorJ 17y ago
"Who has heard of an organism adapting to change by cutting their limbs off?" Like this? http://www.sciencedaily.com/releases/2009/03/090325170604.htm http://www.sciencedaily.com/releases/2009/03/090325170604.ht...
- joeyo 17y ago
  Snakes are another good example (albeit they lost their legs over a much longer time scale).
- lsb 17y ago
  Also, grasses, which try to maintain a constant shoot-to-root ratio; if they get cut down or eaten, they drop some of their root.

jakarta 17y ago

I think it's important to look at costs as investments in the business. And if that investment will not yield a good return, why make it? Buffett famously did this over at Berkshire, where he realized that there would be no future for domestic textile mills. He took the cash flow the company was throwing off and invested it in other companies. So I think that Godin makes a huge overgeneralization, especially when he mentions newspapers. The economics of that business have drastically changed and allocating capital to keep things the way they are is probably a recipe for failure. They'd be better off using the newspaper's cash flow by cutting current costs and allocating that cash elsewhere (new lines of business)

mrbgty 17y ago
"I think it's important to look at costs as investments in the business. And if that investment will not yield a good return, why make it?" Can't agree more. This was my point. Look at those costs as investments and not just something you can get rid of to save money. More than likely, it's there for a reason, so please evaluate this expense as something that is likely producing revenue in some form or another. In other words, you should expect your revenue to fall if you're getting rid of some expense unless you are able to successfully reinvest that expense into something with a higher return.
brk 17y ago
So I think that Godin makes a huge overgeneralization You have basically just summed up Seth's entire blogging history.
- rjurney 17y ago
  Its actually impossible to make a good point on the internet without giving someone, somewhere the ability to call it an over generalization. It turns out though, that pointing out exceptions to generalizations is the lamest comment one can make on the internet, because of course, any statement to a wide audience will have exceptions that someone, somewhere on the internet can point out. Pointing out over generalizations is like pointing out spelling errors, albeit less constructive. You can't get any traffic to your blog if you don't make generalizations, because you won't appeal to a broad, general audience. Of course, thats all just a generalization ;)