Navigating Economic Downturns and Company Layoffs
Navigating Economic Downturns and Company Layoffs is Never Easy
How to Face Unexpected Business Challenges and Support Your People
COVID-19 has brought severe economic destruction to the world economy. Every day, it seems I read yet another story about a CEO saying that the decision to let their employees go is the hardest decision they’ve ever made. I can feel the emotion in each word – because I’ve been in their shoes.
My Personal Story
Back in March 2000, the economy was smack in the middle of the Dotcom Bubble. I was the President and CEO of a company whose revenue was doubling year over year after we received Series A in funding. Since our software could distinguish fraud during an e-commerce transaction, we were licensing it to big box retailers such as Apple, Best Buy, and Staples, as well as to the upstart internet companies.
Our S1 was on file with the SEC to go public. We selected Credit Suisse First Boston, Chase, and SG Cowen as the underwriting firms for the initial public offering (IPO). I was being coached for upcoming roadshows, which are a series of presentations held when a company is about to go public. The objective of a roadshow is to create awareness and whet the appetite of investors towards in IPO.
We were riding high on the success of our company, and our optimism was reflected throughout the entire market.
Assessing the End of the 20th Century
It was a crazy time. On December 31, 1999, Wall Street capped a century of unprecedented growth by closing at an all-time high with the longest-running stock rally in history and the emergence of tech companies as leaders for the 21st century. Individually, the Dow, Nasdaq, and S&P ended a phenomenal year and decade at all-time highs:
· The Dow Jones industrial average rose to 11,497.12
· The Nasdaq composite index ended at 4,069.31
· The S&P 500 index rose to 1,469.25
However, with strong economic growth and solid corporate profits providing the high-octane fuel for the market, many experts began to wonder when the record-breaking rally would end.
Jeremy Siegel, professor of finance at Wharton School of Business, said:
"It's amazing. Every year we say it can't be another year of 20 percent-plus [gains] -- and then every year it's 20 percent-plus. I still maintain we have to get used to lower, more normal returns, but who knows when this streak is going to end?"
It came to a crashing end on March 6, 2000. Shortly before that infamous date, Alan Greenspan, Federal Reserve Chairman made a statement about overvalued stocks:
"How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decades?"
Mr. Greenspan asked in a speech at the American Enterprise Institute:
"And how do we factor that assessment into monetary policy?"
He wasn’t far off in his concerns, and the signs were present. There were numerous companies experiencing significant operating losses with no hope of turning a profit for years to come, yet they sported a market capitalization of over a billion dollars.
The Dotcom Bubble, which had been building up for the better part of three years, began to pop. Stocks sunk. Companies folded. Fortunes were lost. The American economy started to slip down a slow mudslide that would end up in full-on recession.
Making Hard Business Decisions Should Be Hard
At my company, a full two-thirds of our revenue came from dotcoms. It was gone overnight. With the one-third revenue remaining from traditional retailers, we made the decision to cut executive pay, but we had to reduce headcount from 220 to 60 to survive.
We did what we could to help those that we let go. Most people were crying and hugging each other. Our business fundamentals and product were sound, but there was nothing we could do when the businesses who had bought our software shut down.
The market had crashed, so we had to adjust our expenses to account for that 66% revenue drop so we didn’t run out of money. With the 60 employees who remained, we worked as hard as possible to support them as they dealt with survivor guilt.
As I read the recent stories, it was if our situation was happening today. It was the hardest decision I’ve ever made, and it was my worst day as a CEO. Twenty years later, I still remember all the details like they happened yesterday. Just thinking about it brings up a lot of emotion as I write this article.
Facing the Future of Your Business Head-On
I know most of you reading have already reduced your expenses to survive. But in this emotional economic environment, mere survival might not be enough. Your people are hurting and scared, and your customers are probably hurting and scared, too. This means any actions you take must be as purposeful – or more! – than the ones you took to lay off your people when the downturn started.
A couple of weeks ago, I watched the Scaling Up “Re N Vent” Summit” webinar. It was a two-hour webinar featuring thought leaders who took turns giving 10 minutes of laser-sharp advice on bringing immediate oxygen to your business. It was hosted by Verne Harnish, Founder & CEO of Scaling Up and best-selling author of Mastering The Rockefeller Habits, The Greatest Business Decisions of All Time, and Scaling Up.
My favorite speaker that day was Ron Lovett. His book, entitled Outrageous Empowerment, is a must-read. Ron was able to reduce payroll by 30% by removing the middle management layer. This helped him grow by 60% and his company was eventually acquired for a 24x multiple.
He spent his time talking about driving autonomy and deepening relationships. Ron stated you build autonomy by giving employees their brains back. In order to make good, independent decisions, employees should be empowered to ask themselves three key questions:
· Is it the right thing for the customer?
· Is it the right thing for our business (aligned with values, purpose, brand promises)?
· Are you willing to be accountable?
This applies to us business leaders in terms of our interactions with our customers and employees. Now, more than ever, you need to pursue tangible and authentic ways to build true connections with people. Before having that conversation, you can prepare yourself to deepen the relationship by asking yourself three key questions:
· What is your intention?
· What is the outcome you are looking for?
· What is your intention for how they experience you?
I highly recommend Ron’s book, especially if COVID-19 requires you to reduce expenses and payroll even more than you already have.
Let’s not sugar-coat what’s happened and what will happen. These are turbulent times for everyone, from the global economy all the way down to individual people. Your business has already been impacted, which means you’ve made hard decisions about the future of your company and the people who work for you. How you respond to what’s happened matters, but how you plan for the future might matter even more.
If you need help discovering business and people strategies that will move the needle with your employees, your investors, and your bottom line, contact me today for a free initial consultation. Together, we can create a path forward to success for your company.