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Be Careful Not to Cut Your Foundational Cost and Destroy Your Business

Be Careful Not to Cut Your Foundational Cost and Destroy Your Business

As you move into 2025, do not save what is left after spending, but spend what is left after saving. That line is from the zen-master of markets, Warren Buffett. I extrapolate it to how we must improve our business operations: do not have a mindset to cut foundational costs on service businesses, because cutting those costs will destroy your business.

You have a great hotel business where you station men at the front doors. Those are costs and you pay them. But one day, you hire consultants, and the first thing they tell you is to replace those front points with automatic doors.  A video (below) I watched today brought out how we score own-goals in business.

You have saved money. But if you look deeper, you have reduced the premium value of your offering.  The front door man is not just there to open doors. He welcomes the family as they arrive at the hotel. He is the first line of defense to see who can enter that hotel. His presence ensures homeless people do not build tents around your hotel. His presence makes it easier for customers to stay longer in the cafe knowing that when the cab arrives, the front door man will call them to come out. He watches the kids as you run across the side to pay the cab driver. In other words, even though he is paid for opening doors, he does many other things that help that hotel.

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But you have fired him to save cost, and just like that, you have lost a premium service component in that business. In this age of automated customer service, watch your foundational cost and why you must not go to break what makes your business work.

In secondary school, we were told in school that the village free range chicken was the wrong type of chicken to eat because those fowls were small. But later, in America, I realized that only the rich can afford that type of chicken which is raised with no growth hormones or chemicals. Simply, as the AI age intensifies, delivering human-centric customer service, instead of robots and AIs, will be a differentiating factor. 

Get me right: I am not saying you do not need to automate. My point is that you must see the big picture of the cost elements, where on trying to save N1.2 million you pay the door man, you hit your revenue by N50 million, because you have reduced value for core clients.  You can use AI to answer customers, but is that the differentiation you need? 

If Transcorp Hilton Abuja removes humans on those doors, I promise you that the revenue will drop within quarters. While the hotel can save money from those salaries, it will hurt the bottom line. Many rich people like to be welcomed as they’re used to people serving them. By making them commoners where machines interact with them, you offend them and they will respond with their foot traffic. And you certainly do not want that to be the case.

You cannot make rich people interact with machines as they have no problems paying for humans to open doors for them!

Save the future revenue first before you think of spending from the current expenses! Do not cut your foundational cost


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1 THOUGHT ON Be Careful Not to Cut Your Foundational Cost and Destroy Your Business

  1. In other words, all the talks about AI and robots in service delivery are for just mass markets, wealthy people only talk to humans, and you cannot install machines to interact with them. When your premium customers are displeased or unhappy in any way, you send humans to pacify and give them a treat too. Same goes for those who rely on machines for their writings, until you send the garbage written by machines to those who know how actual humans write…

    Every invention or innovation has its market and limits, do not overplay your hand and end up offending the very people who keep you in business.

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