Posted on July 19, 2017
The better you are at building your team, the harder it will be unravel it. And yes, you will eventually need to unravel it.
Let me explain.
If you never do layoffs then you’re not innovating
If you’re like most companies then you have a product that you’ve built for a target customer. No matter if you’re selling to businesses or building an app for people to download, someone at some point is giving you money. And if you’re like most companies, at some point your revenue will plateau. That’s all fine and natural. It happens all the time.
Most companies aren’t happy flat-lining. Even if you’re a lifestyle business with no outside pressure to keep growing, as a good student of business you’ll be paranoid about that flat line turning down. Or you’ll get bored or frustrated and want to break through the plateau just to say you did it. Regardless, you can’t just let your business stagnate and whither away.
So what do you do? You start to explore. You look at other marketing channels to bring in new customers. You consider adding features so you can charge more from your existing customers. That’s the basis of growth: get more new customers or get more out of your current customers.
To make changes like this to your product you will need to change the makeup of your team. You’ll likely not want to sacrifice your existing business, so to expand your revenue you’ll need to hire more people. These engineers or marketers or sales and support reps will build and sell your new innovations. You’ll expand your team in order to try to expand your business.
If it works, those new hires get to keep their jobs. If it doesn’t, then you’ll have to lay them off. You won’t win every experiment, so you’ll eventually be faced with a layoff. That’s why I say if you never do layoffs, then you’re not innovating.
Great hires help you innovate
Question: How do you expand your team knowing that you may need to shrink it down again? Who would take a job like that?
Answer: Great employees would, and they do it all the time. If they don’t take that bet on you then they’ll join your competitors instead.
When you’re hiring to test a growth hypothesis you need to be honest with the new employees and your existing team. Great employees expect to be in on the action. They demand respect and trust. You owe them, as the leader of your company, most if not all of the inside detail. Caveats are abound here, but suffice to say if you keep too much detail away from new and current employees, it will backfire. When the layoff happens, and again, it will happen, they will feel a breach of trust.
Their logic will go like this:
- The leader of my company doesn’t think I can handle the truth
- I know I can handle the truth (right or wrong, this is what they will think!)
- Therefore, I’m being under-utilized and under-appreciated here so I should seek employment elsewhere.
That’s not a good place to be with your most precious assets. You can’t afford this kind of depreciation.
If instead you tell the people you’re hiring and the people already signed on with you that you’re beginning some growth experiments, they’ll get fired up. Don’t just tell them business is flat. Say we’re building a new product and investing in new marketing because business is flat and we are going to fix it together!
Great employees are risk-seeking. They’ll take big bets and they want leaders who have the guts to do it. In my experience, when we changed our approach from hiding uncertainty to sharing it, leveraging it, and getting motivated by it, it not only made work more fun (for me and everyone else) but it improved our culture and our ability to hire great people.
Hiring great people is critical, but you don’t hire great people and expect them to save your business. A doomed experiment is a doomed experiment, no matter who’s running it. Great people will help you close the loop faster so you can run more iterations and find the one that works or discover that it’s a dead end. Great employees help you make decisions faster, and when you’re a startup, speed is everything.
There is such a thing as a good layoff
Layoffs are not fun, but they can be done right.
First, let’s define success. A successful layoff is one that doesn’t create unwanted attrition. If you can do the layoff without losing someone you didn’t mean to lose then congratulations, you’ve earned your black belt in layoffs.
It’s difficult to do, but there’s a clear method. It looks like this.
- Be transparent all along. If you’ve hired great people then you can bring them into your strategy, improve your culture, and have more fun. It’s win-win-win.
- When you have to do a layoff, it may be difficult for some but it should be shocking to none. You should have already made your staff aware that this outcome was possible, even probable, long before the layoff happens. You also should have updated the team as your experiments progress.
- Time the layoffs so you can offer generous severances. It will be emotionally easier on you and the remaining employees if your departing teammates are given at least a month to find new jobs. It’s a real shame, and a very poor reflection on management, when layoffs are done and there’s insufficient cash for severance.
- Finally, the prospect of ongoing, small layoffs is a heavy burden for even the best employees, but especially hard on you. Don’t torture yourself or your employees. When you execute a layoff, go as deep as possible. Cut far enough so you can say with certainty that there will be no more cuts for at least six months, ideally a year. That’s how long it takes to hire, execute, and conclude a meaningful experiment anyway.
If you start a company today, about 90% of your expenses will be payroll. The great people you hire will be your most expensive and highest leveraged asset. The only thing harder than bringing them on will be letting them go.