Managing Layoffs Due to Financial Constraints
5 April, 2020
There are times when businesses go through financial constraints. It is during these times that a company must make a series of tough decisions. As a general rule, if you’ve gotten to the point where you are debating to cut costs, it’s probably time. I was working at a company when we had to make that decision. Upper management decided that we had too many financial hardships and so we needed to layoff 50% of our workforce. Of course, this will vary depending on the size of the company, but either way it’s a difficult situation, especially if you’re the manager having to lay people off.
First, understand the constraints that the company is under. How much do they need to cut? Consult the founders and business partners and request information on what it is they are trying to achieve in this scenario.
If they are trying to save the company until the next breach then operate at the bare minimum in order to keep the system working. This means keeping on essential operational personale and experts who are knowledgeable in every system.
If there are multiple products, choose the one that has the potential to scale and be profitable, or at least break even. Then, shut down the other products. Focus on the one that will extend your runway and grow your company. Maintain people who have the mentality to grow the product, find the product division, and be willing to start from scratch if necessary.
Next, once you have identified the strategy - how the company wants to optimize costs by cutting expenditures, you then must start working with the team. Being proactive and transparent is super important. Communicate clearly what has happened, what the scenarios are, and what is being done about it. All communication should be synchronized with other departments so it’s best to have the founders and C-levels help to organize this.
At this point you might be having some thoughts like: “this isn’t any of my business”, “this isn’t for me”, “there is no value I can add”, “I will need to leave soon as well, so why bother,” etc. This is a difficult situation where decisions are going to be made, but it will be beneficial for the company and individuals to add your valuable opinion. Who of your people will have an easier time finding a job? Who of your people are financially dependent? Of your people, who is ready to step-up, take more ownership, and potentially sky-rocket along with the business after these hard times? You need to be there, supporting the company and individuals until the last person leaves.
The next step is running one-on-ones. These allow you to understand each individual's personal situation and to help them transition out of the company. People appreciate a manager who not only understands and empathizes with their situation, but also someone who proactively reaches out to help them find another job. Utilize your network. Reach out to recruiters you’ve worked with. Touch base with companies that you trust. Perhaps a former colleague knows of a position. Show that you care about the work that each individual has done and the career path that they are on. Take care of team members and build a trustful relationship.
Lastly, for those people who will remain at the company, be transparent about what the future will look like for them. Explain the financial situation going forward and how long the company's runway looks like. Comfort them about the circumstances. Furthermore, reassure them that they are the best from the team and that you have confidence in them to make the changes necessary to help the business grow. Frame it as a fantastic opportunity to contribute and aid in saving the company.
- Be transparent about the situation. If you are able to, communicate upfront to the team what you are doing, why you are doing it, and an expected timeline. This is basically all of the knowledge that you have gained from management. There is no reason to hold information or keep it a secret. People value transparency.
- Create a personalized exit strategy for each individual. Empathize with their situation, understand their personal circumstances and prior engagements they may have, and support them as they transition into the next step of their career.
- Many managers have a hard time letting people go. They think they will never have to do it in their career, that it’s unethical, and so they make a stink about doing it. However, it’s actually a fantastic learning experience in terms of the emotional trust that you can build with people. If your company doesn’t have the money to continue at full speed, you are in a delicate position to not only be professional but also to empathize and help your team through this difficult situation.
- This is the time to be business smart. Therefore, take this opportunity to get exposed to the financial side of the business. The org is in an emergency situation which means it's easier to build trust with the founders and those in charge. Therefore, you are more likely to get exposure to financial documents. Be proactive and try to understand how it all works. Ask, how is the company financed, what do the budgets look like, and learn about the financial side of the business.
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