Tough calls and unintended consequences: The risks of change, or not

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Some business decisions are black-and-white simple. You take an action(s) because you’ll mitigate losses, increase your profits, or reduce your taxes, or all of these (and more) elements.

Other decisions are more complex. Do you go for a cold-turkey slash and burn strategy when things aren’t working right, or do you try to mitigate the losses, holding on to your core systems and processes (and people) while you try to make things better?

I think of these options as the clock ticks to an initial crisis decision a few weeks ago that would have seen some pretty drastic developments for my own business. (I won’t go into specifics here because this story is still very fresh.) A week ago, however, I had a cold-sweat experience — was the drastic step really necessary; could we mitigate the process, achieve the results we seek, and save severe hardship and major business operations disruptions.

One of our contractors who (in her multitask roles) fills in as a business budget analyst crunched the numbers and within a few days seemingly validated my “hold fire, at least partially” decision. With the drastic cuts, indeed, operating costs would drop through the floor and there would be a good chance the business would be quite sustainable. With the less drastic cuts, however, the business costs would still decline enough to maintain break-even/profitability without blowing everything in the air. In other words, both answers were correct, (it seems) though there would be less risk and stress in going with the softer touch.

Of course, all of these choices rest on assumptions. While we can boil our costs down, can we really maintain sales revenue at the same level — or will there be a further painful erosion in the business income?

And here the problem of shaking things up with an established business comes to the front. Well-established businesses have various systems, processes, and embedded efficiencies as well as inefficiencies. As an example, some of our current products depend on the method of production/distribution of others — cutting the “others” affects the “some” — and currently revenue-contributing products become problematic, or expensive.

On the human level, too, we could save significant fixed salary/payroll costs by cutting some long-term employees. But the costs don’t completely disappear. One employee has developed expertise and skills for part of the work that would be very expensive to replace (I think at a cost of at least 1/4 of the individual’s salary). Suddenly the cost savings don’t look so great; and the income loss turns out to be greater than anticipated.

Then what should you do in these circumstances? I’ll stand by the basics: We need to know our bottom line, understand the general environment, the rules and laws affecting our businesses, and be ready to make hard decisions when we need to make them.

My decision: Go with the softer plan, but use the time to get the systems, processes and expectations in place to deal with other options. Know the point of no return. And, on a more positive level, keep an awareness of opportunities for growth and innovation. We may need to cut to survive, but we need to innovate and experiment to grow.

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