When bullets are flying, who do you really want with you in the foxhole?
My prior Survival Assumptions post described the process for doing bottoms-up revenue and cash forecasts. Armed with these, you now know how much cost needs to be cut out for the company to survive an extended war of attrition.
Let’s also presume you’ve cut (or have a list of) the obvious non-people expenses. What’s left now are the hard decisions around which people will be asked to leave and possible salary reductions for those that remain.
Identify Essential Functions and Consolidate Roles
Identifying the bare minimum resources needed to sustain existing revenue becomes the starting point. Start with narrowing the essential functions that have to be covered – including looking at options to change how your organization is structured. Can some of those functions previously segmented into different roles and departments be consolidated?
The steeper your revenue shortfall is compared to the pre-pandemic budget, the more department and role consolidations come into play. Look at which units touching customers are organized under different managers. Consider putting these functions together and reallocating how the work is distributed across a smaller team. In addition to reducing overall costs, this type of action can deliver more efficient execution with a leaner management stack.
One word of caution is to beware of managers seeking to preserve their own jobs and suggesting drastic changes for other groups.
Synthesize Multiple Inputs
The actions recommended in my previous post have already got you prodding people at different levels. In both group and individual meetings, you’ve been asking for creative input that departs from the current process and structure while still preserving essential functions. The objective is always so your company can maintain (or grow) revenues with fewer people.
Now it’s time to curate that input and start modeling different scenarios. Initial modeling prepped by the CFO for discussion with the CEO, might also loop in potentially 1-2 other direct reports who aren’t in the zone of consideration for their own roles being on the chopping block. Intense discussions around unit and role consolidation (including potential management reductions), should take place in a very tight group before expanding to a broader management team review.
Start with the highest management tier – can you consolidate departments like Sales and Marketing? Or combine Sales and Customer Delivery/Account Management to a Chief Revenue Officer? Which admin and general expense departments can be consolidated to a leaner team?
As you advance to a broader team discussion, your thoughts on which of your direct reports may be cut won’t be shared right away as you want consolidation discussion to go deeply across all company lines before finalizing on structural changes driven by the reduction.
Start looking at the individual people affected only after getting a clearer picture of the new structure that is needed. Some team members are likely better suited to work in peacetime where roles and processes are more clearly defined and there is less emphasis on fast, creative problem solving and flexibility. In wartime, you want people who are committed to fight hard battles with few resources and are also nimble enough to rapidly adapt to new roles/wear multiple hats.
Balance Objective Measures with Core Values
In the first round of headcount cuts, it’s often easy to separate top performers from those that are below par. But if your revenue loss pushes you towards massive cost reductions, you’ll have to lay off committed performers who’ve done all that the company has asked them to do. Making these choices is the hardest of hard things.
You’ll have your own bias about people you’re already interacting with on a regular basis. However, the larger your company, the harder it is for you as CEO to have in-depth personal contacts across the organization.
At the start of the “dot-bomb”, TriNet had about 500 employees spread across diverse functions in eight different metro areas. Going through the process described here, we were fortunate to have already incorporated a set of 5 core values into how we arrived at other HR decisions like hiring, firing, promotions, equity grants etc. Faced with the decision of selecting people to go into the new leaner structure, our internal discussions were grounded on core value attributes demonstrated by the people retained vs. those to be released in a layoff.
Within the context of our core values, we looked hard at objective measures for productivity, contribution to cross functional teams and projects, evidence of exceptional customer satisfaction, speed at which someone learned new roles and other attributes that lined up with important qualities we needed during wartime.
So while the final decisions were a blend of applying objective measures and subjective judgement, the takeaway here is that having a defined process around how these decisions would be guided helped get the right information into the mix and also minimize impact from the loudest voices in the room (aka Strong Opinions Loosely Held).
Cutting salaries is another tool in the box as part of an overall cost reduction strategy. Most companies don’t consider it as there are many complications to work through, including contractual and culturally.
You want survivors committed to stay, not putting valued energy into pursuing opportunities elsewhere. So this approach is best considered only if there is genuine solidarity among the workforce that belief in the company, and their fellow team members, is strong enough that people express a preference to lowering their own salaries as an additional way to keep more team members on board.
At TriNet, we chose to take a voluntary approach offering incentive stock option grants with meaningful upside opportunity for participants. We did not release program details until we first socialized it through the executive team and other key contributors to confirm there was a broad base of support for people to take advantage of it. It also made a difference that we had an ongoing effort at upgrading the entire team’s financial literacy so they had some background on how to view the company’s progress and also how stock options work – both critical elements to get buy in for trading salary cuts for equity upside.
The Leader’s Accountability
Wartime is the ultimate test of a Founder/CEOs leadership. My inner conflict of wanting to protect the livelihoods of those who passionately supported the company was the greatest struggle I ever faced as an entrepreneur.
We can’t delegate these hard decisions to others. Even with managers making recommendations at each step of the process, I took ownership for every layoff decision made. These were people who trusted me in guiding the company in a way that assured a continuing opportunity for them if they met and exceeded standards we said defined both successful performance and embracing our core values.
I felt personally responsible for the management failure in not being able to hold up the company’s ability to fulfill that agreement. The weight of those layoff decisions affecting hundreds of people’s lives stays with me still 20 years later.
While I can’t turn the clock back to redo my decisions that led to scaling up so fast at the tail end of the dot com era, I do have some comfort in knowing that our process of selecting the wartime team had a lot to do with our surviving the long nuclear winter that destroyed most other businesses so dependent on tech company customers as TriNet was when the dot com world blew up.
Next post in this series will cover the human interactions on layoff day – both those being laid off and the survivors.