Gentlemen, watch your costs
A famous quite from Andrew Carnegie can act as a great guiding principle to succeed as a business.
Hey folks 👋, Bala here with another issue of OpsWorld. If it's your first time here, we generally write about technology and how it impacts the world of Operations.
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Gentlemen, watch your costs
This is a quote from Andrew Carnegie. He’s a Scottish-American industrialist and philanthropist who led the expansion of the American steel industry in the late 19th century. His auto-biography is a fascinating read.
Carnegie’s philosophy is that you keep an eye on your costs and improve the efficiency of the business, your profits will take care of themselves.
An important distinction between Costs and Loss is that Costs are absolute. Your profit and loss will change over a period of time and you will be able to recoup your losses when your business capital management and efficiency improves. But costs are immediate. You have to pay that factory rent at the end of every month whether you make a profit or a loss.
This is also a key differentiator when it comes to Startups vs Traditional businesses. In both cases, costs are absolute. But Startups can survive with losses for the time being given they can make up with future profits. Whereas traditional businesses do not have that luxury. If it’s a loss, you lack the capital for the future. Costs and losses are more tightly combined for traditional businesses.
Getting back to the theme of this post, for operationally heavy companies, it is an absolute mandate to keep an eye on the costs. From my experience in this industry, I’ve not seen cost cutting as a separate exercise has never panned out well. What is a better strategy is to keep costs low as a continuous activity.
Know your unit economics, know your cost breakdown.
As long as you keep the costs low and have a path to improving your profits over time, you will succeed as a business.
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