Colleges in Wales should be more "entrepreneurial" and boost their income by laying on training courses suited to the needs of local businesess.
Sheila Drury, chairperson of ELWa, the post-16 funding agency, said nothing validated courses more than having employers willing to pay for them for their staff.
But she also warned colleges that greater collaboration with schools, and other providers of post-16 training and education, is the only option if they are to prosper amid demands for greater financial stringency.
Her calls came as Wrexham college confirmed plans for compulsory redundancies among staff, as a result of funding problems. Managers say lecturers who keep their jobs could face cuts in their working hours.
Courses could be affected, and staff who leave or retire will not be replaced.
At the annual conference of fforwm, the colleges' representative body, Mrs Drury said colleges should strive to match the needs of the business community. For example, employers in the electronics industries have criticised FE's ability to meet their needs: too much provision was only available during standard hours in term time, and programmes were insufficiently tailored.
"Nothing validates the worth of a course more than when employers are prepared to pay for it," she told last week's conference in Cardiff.
"Nothing gives truer independence to a college than when it earns a substantial proportion of its income through entrepreneurial activity."
Colleges, like the rest of the public sector in Wales, are under pressure from the Assembly government to make 1 per cent efficiency savings a year.
Many are already running deficits and complain that FE funding has been frozen for two years. She said ELWa wanted to avoid "crude slashing" of important but expensive community and adult courses run by colleges. fforwm warned last month that outreach services for the most vulnerable students were under threat.
Colleges should make the most of their resources by collaborating with other providers. The Assembly government has set aside pound;6 million to support collaboration. So far, the "common investment fund" has received 121 applications, 76 of which are promising, she said.
Mrs Drury praised the Cardiff Collegium and Deeside college for their strong links with local schools. And in Wrexham and Denbighshire, colleges and the local education authority are developing a collaborative post-16 curriculum with an emphasis on e-learning and promoting vocational routes besides AAS-levels.
But she warned: "I'm concerned about schools taking it upon themselves to deliver new (vocational) courses.
"We've made it a condition of our funding to LEAs that they may not do so post-16 without the written authority of ELWa's director of learning.
"There must be a sense of responsibility, on the part of all providers, for satisfying the needs of the locality. Learners must have unbiased access to a full range of information about their options."
Meanwhile, education and lifelong learning minister Jane Davidson told the conference she is to appoint a vocational skills champion to improve the image of non-academic qualifications which, she said, are still held in low esteem by employers and universities.
"Whoever we appoint must have business credibility," she said. "They should also have experience of vocational learning and working constructively with schools, colleges and sector skills councils."