Wartime Leadership 4: Layoff Day

Many companies savaged by loss of sales due to Covid-19 have already been through a first round of layoffs. Even with talk of easing stay at home restrictions, the revenue outlook for many businesses is looking bleaker now as companies are still grappling with prospects of a long recovery.

If you’re readying another round of headcount reduction, it’s important to go as deep as you possibly can to keep the business afloat with defined revenue and available cash. The preparatory steps were outlined in my previous posts Survival Assumptions and Picking the Wartime Team.

We’ll presume you’ve thought through whether to furlough staff (which may keep employees on benefits for those most likely to return) versus outright layoffs (for those less likely to return in the immediate future). Both sets of employees would be eligible for state and federal unemployment benefits, including additional benefits provided by the Federal CARES act. Lots of guidance is available on those topics. Here is one example for New York State employers.

This post is about the human interactions on layoff day. All team members, departing and retained, deserve your respect and sensitivity. The right approach involves coordinated steps for consistent company wide execution.  I’m drawing from experience in having been through this painful process too many times in TriNet’s struggle to overcome the dot com blow up.

All Hands Announcement  

A morning company “All Hands” meeting is the best avenue to answer the most important question and ensure it is communicated consistently – why are we doing this?

Even though everyone knows that Covid-19 is affecting the business, the extent to which that has affected your revenue line is probably not well understood throughout the ranks. If you haven’t previously shared financial information company wide, then the connection between revenue and what’s available to pay for salaries may also be a big unknown for those not directly involved in the budgeting process.

The All Hands should provide staff with an objective grounding in financial and operating metrics that stresses how significant the difference is from the pre-pandemic world to the currently uncertain future. It’s important that the full team be aware of the non-people-related costs you’ve already stripped out. Ideally, the contrast between the pre-pandemic and the wartime plan ties to elements of your Survival Assumptions. These critical items have to be clear so everyone understands the need for dire action and the layoffs occurring that day.

Following the facts outlining the need for drastic change, you can describe the process by which people will be informed and highlight steps the company is taking to help those being released.

Close with your personal, most sincere thoughts about what taking these reductions mean to you. There’s no perfect script. Your openness, accountability and vulnerability will impact how people remember your leadership at this most critical time.

1:1 Discussions with released team members

Rule one about informing people being released is never deliver the first news by letter, email, text, slack or voicemail. Since the pandemic precludes in-person meetings, videoconferencing is the best option, with a direct phone call the only alternative. Anything less smacks of callousness. Departing team members will never forget their separation experience and will likely share with others how the company treats those it let go.

Ideally, these are one on one discussions led by an upline manager or executive, not a job for HR or someone not involved in managing the team member being released. In larger companies with entire departments being shut down, it is possible a group meeting with several people on the same session may be necessary. In situations where the manager or executive is also being released, the notification responsibility rolls up to the next level – all the way up to the CEO.

While you might plan on a layoff notification taking 10 minutes, most will require 5 minutes or less. Even though the earlier All Hands meeting set the stage, if you’re the team member receiving official notice your income is being cut off, it’s simply not a discussion most people have a desire to prolong.

Neither managers nor the team members want to be in these meetings. Some will seek to avoid them. It’s up to the CEO to drive the requirement for personal interactions and ensure managers are provided an appropriate HR approved script that is followed consistently throughout the company.

This includes providing written documentation on the details for timing and offboarding process, impact on the employee’s benefits and guidance on filing for unemployment benefits. Doing so allows the procedural part to be mentioned and passed along in writing, and offering the opportunity to answer questions. HR may also have a list of Frequently Asked Questions that managers can refer to.

After the formalities are done, comes the important topic of what the manager can do to assist the team member being released. Managers can deliver great value to a released team member in a number of ways. For instance, writing a recommendation that appears on the employee’s LinkedIn profile and showing  readiness to support job search efforts are basic steps. Going into details at this stage is not the point, as most terminated employees won’t remember them. What the employee will remember is how sincere and compassionate you were in being sensitive to their situation. A personal follow up the next week to show your support will be a better time to talk about specific ways that you can help them.

Recapping With Survivors 

By the end of the layoff day, all the survivors will be emotionally exhausted. A close of day All Hands meeting for those who remain is your first opportunity to address the survivors’ grieving process as well as set the tone for what’s ahead.

Recognize that while survivors are grappling with a sense of relief as well as regret and sadness over the loss of colleagues, some of which may have been close friends. They may also be concerned about losing key contributors whose work will now be distributed among a smaller team.

This meeting is the CEO’s opportunity to lay out key elements of the wartime strategy to answer top of mind questions like “How are we going to survive this? What are we going to do differently?”

Possible topics might include:

  • Department and role consolidations (described in Picking the Wartime Team) and what will be necessary to put these changes in play while minimizing disruption to customers.
  • What new revenue opportunities will you be evaluating? Are there some new service opportunities appropriate for the pandemic environment that are suddenly in demand?
  • Back burner pet projects that had longer term implications – explaining the lens used to consider resource allocations beyond fulfilling immediate customer or near-term revenue.
  • Looking at shifting some fixed compensation to variable, as well as hours reduction and a re-examining of paid time off policy.
  • Closing with a very clear set of wartime priorities and a reminder that everyone has the opportunity to contribute. This is a great time to roll out changes that enable sharing across department lines and push ideas and opportunities upwards.

Leave time for Q&A and in these remote situations, define your process for Q&A to be accomplished virtually. There are some questions that are best addressed individually, while others require the CEO speaking to all in attendance. A chat moderator may be helpful in deciding which questions are suited for a group response.

When you get to Q&A, it’s guaranteed to include the most top of mind issue for all: “Will there be any more layoffs?”

Steer clear of making promises you may not be able to deliver on. It’s your customers buying that drives revenue and the prolonged period of uncertainty will have implications you simply can’t predict.

Like other rookie CEOs facing their first massively secular downturn, I fell into the trap of feeling like my making a commitment that we’ve put the pain behind us would instill confidence in survivors. But as TriNet’s revenue slump continued to deepen, it became obvious our cuts were not deep enough. In retrospect, my answer only created further questions about my leadership because I had set expectations I could not deliver on.

Having to go through layoff agony multiple times is my deepest regret as CEO. Especially with regards to how I set expectations about our recovery. In response to the “Will we have any more layoffs?” I should have responded truthfully along the lines of: “I can’t make promises about the pace our customers are going to resume buying. We’ve cut really deep so we don’t have to do this again. It’s a coordinated effort that needs buy-in from every single person here. That’s the only way we get out of this with the very talent we have on board today.”

My friend Jeff Hyman is a superstar recruiter, Silicon Valley serial entrepreneur and former TriNet client. He went through his own dot bomb experience and has a terrific video capturing elements of Wartime Leadership. Scroll ahead to 58 minutes for a quick look at survival assumptions followed by guidance on your D-Day meeting with survivors.

You can also take advantage of TriNet’s Business Resiliency and Preparedness Center for free access to Covid-19 related strategies and resources for Small to Medium sized Businesses.

The next post in this series will expand on resetting expectations and navigating survival themes – including organizational changes needed for wartime victory.


Wartime Leadership 3: Picking the wartime team

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).

Salary Reduction

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.


Wartime Leadership: Survival Assumptions

How do we navigate through a period where we know our revenues are going down, but we don’t know yet by how much, or for how long? No one can predict when business will return to the pre-pandemic state. We know we have to cut expenses, but what’s the right reduction target to be aiming for?

As discussed in our Wartime Leadership series opener, we all lack clarity for answering these big questions. This uncertainty in turn drives hard decisions around how deep to take cost reductions – especially when it comes to laying off team members. 

By now, many companies have already taken their first round of cost cutting yet remain more than a little uncertain if they’ve gone deep enough.

This post offers a methodical approach to defining a basis for forecasting the 2 most critical items on a CEO’s list: revenue and cash. The basis behind what gives visibility to revenue and cash drives how deep our cost cutting measures have to be to stay alive – or put another way, our survival assumptions. 

We’ll start with the revenue forecast since that factors into cash flow planning and is also the harder to define through this fog of war. We’ll also presume you’re a B2B company not expecting a quick rebound once stay at home orders are lifted since the pace of restoring revenue depends on a combination of factors you have little control over. 

With so much diversity across industries, business models, company profile etc., it’s not feasible to suggest a universal model that works for everyone. I’ll instead highlight a few process steps that may help steer your forecast towards being realistic and sufficiently fluid so you can guide decisions as circumstances change.

Throw out the peacetime budgeting process 

If you’re running an established business with a history of operating and sales team metrics, you’ve already got a defined process to approach budgeting. In peacetime, this is typically a CFO led exercise beginning with past baseline and trends passed to each operating exec. Execs and their departments add updates without necessarily having company wide guidance on macro trends or big picture external forces to consider.

Since how and when businesses recover from the pandemic will be all over the map (including impact on your customers reeling from pandemic losses themselves), the wartime approach has to take in a lot of non traditional input, gathered in a consistent manner so the findings can be rolled up and examined holistically, as opposed to each department viewed within its own silo. 

Get outside the building to gather new data

Gauging the extent of unknown external forces is what makes for the wartime exercise here. Relying only on what you know from inside the company would be like guessing how many troops you’re dispatching to battle before assessing the size and positioning of your enemy. 

Wartime CEO and serial entrepreneur extraordinaire Steve Blank says “There are no facts inside the building so get the heck outside.” This means dividing the team up with specific missions to go out and grab external findings from customers and prospects. When synthesized, these findings paint a more complete picture of the forces shaping the uncertain world your company is interacting with. 

Sample discussion points might include: 

  • How are different customers and prospects affected by Covid-19? 
  • Which geographies and/or industry segments are they most worried about?  
  • Are they reducing staff? 
  • Do they need to modify their buying plans with you now? 
  • What changes can you make to help them? 
  • Which trigger points or trends is the customer watching as leading indicators for where their revenue is headed? 

With pandemic restrictions precluding in person visits, you won’t get a grasp of what’s happening with your customers by sending out email surveys or expecting them to give you online feedback. In wartime it’s the human contact that matters, now more than ever. Not only to get a response, but also to coax a bit more information out than they would not likely provide other than through one on one real time contact. If they don’t answer your calls and personal outreach, then that itself is a signal worth tracking. 

Orchestrating a tight script with relevant questions is a large, manual task involving a broader portion of your team. A good script that you can deliver increases the number of data points and gives you a better handle on trends and findings.

Making sure everyone gathers input off a similar script increases value. This includes front line account managers, sales team members, and other managers and executives working in a coordinated fashion. Consistency of information capture is also important. This could be a scoring system in which account revenue projections are qualified with relevant comments (+ and -) that are also shared in a group exec team discussion as part of the roll up process leading to a consolidated forecast decided by the CEO and CFO. 

Throughout the customer outreach at all levels, keep pressing for ideas that point to key leading indicators signaling strength of the account’s expected revenue. If you’re able to spot assumptions behind individual account forecasts, a pattern may emerge that can be distilled to a few core measurements for your revised overall company revenue forecast. These measurements will help in articulating the company plan to your board or possibly alternative financing sources. And they will now be supported with quantified assumptions which can be tracked over the coming months so you can update the forecast as the recovery unfolds.

Let the cash forecast drive cost reduction planning

At the same time you and outward facing team members are speaking with customers and prospects, the finance team can be pedaling hard on collecting payments already due, tightening up credit policies that might lead to reducing or eliminate credit, building cash reserves by drawing on available lines of credit and mapping out other debt options in addition to grinding through the process to file for the government sponsored Paycheck Protection Program and Disaster Recovery Loans you might qualify for.

Focused discussions should also be underway to identify an expanded range of cost cutting options. Following the kick off exec team session to generate an initial list of options, individual execs meet for a detailed drill down with the CEO and CFO. These interactions are less about making decisions on the spot as it is to spark and nurture ideas, and also note who is contributing in ways that look beyond protecting their own turf in suggesting creative options that make sense for the entire company. 

While some of the obvious cost cutting might be implemented immediately, finalizing layoffs are best deferred till after you’ve got all the information put together from the updated revenue and cash flow forecasts. It’s only then that you arrive at the stage of showing the projected cash burn compared to your previous budget so you can then hone in on the amount of cost reductions needed.

Layoffs are the most drastic measures and should be undertaken after a great deal of thought. That being said, once the decision is made, it is best to act quickly and do in one single shot rather than creating waves of layoffs. Dribbling out layoffs over time is a sure fire way to damage your leadership credibility, destroy morale/impede productivity and increase the outflow of the very people you want to retain. 

Active leadership matters

Wartime leaders are visible and hands on throughout all these steps.  Everyone in the company is looking upwards to see how involved the CEO is. This is not a time to isolate and speak only with investors and executives. Team members are already aware the virus has severely disrupted the business, so there is a heightened sensitivity about whether their own job is in jeopardy. This is the time to step up interactions at all levels by taking part in team meetings and selectively engaging in 1:1 follow up discussions after the group meetings. 

Asking questions and getting input from the front line team demonstrates through your actions that both assessment and decisions are being approached methodically. Your personal interactions will also prompt chatter through the ranks – which in turn spurs greater cooperation in driving the information flow upward so you can build the right set of survival assumptions that become your instruments for guiding key decisions through the uncertain times ahead. 

Next post in this series goes into the hard decisions around positions, people and process for affecting a layoff. 


Wartime Leadership

 This past week I reconnected with CEOs in our UpVentures portfolio and others running companies that I have close relationships with. Synthesizing those conversations with other signals I’m getting about the economic impact of an extended shutdown, this post will advocate throwing out elements from leadership approaches companies were following just a couple months ago and rapidly shift to a wartime footing.

 Let’s start with some necessary context before advancing to leadership approaches for these unprecedented times.

We lack clarity on timing of downturn and recovery

We know the scope of Covid-19 shutdown is like no other business challenge any of us have faced before. Post 9/11 had some parallels, particularly for companies in NY metro – but did not lock down entire industries and consumers for an extended period as is happening right now.

 My own context coming closest was managing through the 2000-2002 dot bomb era – best appreciated by those who were in leadership roles in Silicon Valley over 1997-2000.  Back then, we rode the dot com wave to frothy excess, only to see it all blow up in a nuclear winter that followed starting mid year 2000.

 About 98% of TriNet’s revenue was coming from dot com customers – a great story when we sought to go public with our first filing on March 2, 2000. As mentioned in my 2014 Pre-IPO Anxiety post, things didn’t work out then as planned and I had to dig into wartime leadership mode for the next two years.

 Like now, we started the dot bomb era thinking it was a temporary aberration. Up to that point, dot com fueled an unprecedented wave of success and it’s natural to have confidence the past will soon return so could get back on track. With TriNet’s revenue model based on the volume of employees we serviced at other companies, customers closing shop or laying off people due to losing their own funding were immediate hits to our revenue. In a wartime environment, no one wanted to talk to us about buying our services – who had the time? We knew it would turn around at some point, but when would customers stop laying off and when would others be ready to start buying again? No one was predicting it would take the better part of 2 years to recover from that nuclear blast.

 Like now, leaders were understandably concerned about trying to retain their talent and think that by showing optimism with the “we’ll get through this” outlook we can keep everyone working hard, and in sync, just like before.   Albeit now we have the additional complication of not being able to call people together to meet in person.

 Like now, since we weren’t clear on the duration of the downturn, we felt the urge to provide assurances to our team by making promises we weren’t sure we could deliver on.

And probably most importantly, like now, we as leaders were trying to avoid making the hardest decision of all – laying off team members to rightsize the business so that we could ride out what we knew would be harder times ahead than many of our team understood or were anticipating. Not just employees who were marginal performers, but cutting right to the bone by laying off talented people who had worked their butts off and done everything and more than we asked them to do.

 In short, whether your business is fortunate enough to be in the category of being fueled by the pandemic, or the more likely scenario of being savaged by it, our entire mentality of leadership has to change from peacetime to wartime.

Peacetime priorities no longer matter 

In peacetime we tend to put culture first, building the strongest consensus possible to get buy-in on decisions and are also deliberate in pointing resources and projects that support our medium to long range strategy. Most of that becomes irrelevant in wartime.

It’s no accident our military operates on a strict command and control model. Survival is the lens by which all decisions are examined through. Leaders micromanage the critical things that matter – for companies that begins with cash and collections since that’s the oxygen that keeps the company alive. 

Start the process now with heightened focus on cash management with ultra conservative assumptions for a longer period than just a few months. Getting in line for the government’s PPP and disaster recovery loans will be short term band-aids, but necessary steps to invest management time in today since we know there will be a lag time to get that relief. 

All bets are off if we thought another round of funding was on the horizon from equity investors. Living on our own cash with whatever debt sources we can raise is the new imperative.

We’ll also re-examine our assumptions about what we need on a wartime team. Not just our direct reports, but at all levels of the company. Can we combine some roles with one person now wearing 2 or 3 hats instead of the peacetime practice of separate departments? 

Since we have to move fast, we know we’re going to have to make some decisions with imperfect information that do have some risks in the outcome. Sometimes that means we’ll break glass and ask for forgiveness later.

There’s only one goal in wartime

I’ll close with a couple quotes from Brad Feld’s excellent post Wartime CEO:

Peacetime CEO sets big, hairy audacious goals. Wartime CEO is too busy fighting the enemy to read management books written by consultants who have never managed a fruit stand. – Ben Horowitz

Your big hairy audacious goal in wartime is not to die – Brad Feld

The next post in this series will touch on the hardest of hard things – approaches to laying off team members.