The Entrepreneur's Mentor

Keeping Your Wits About You

Times are tough- of this there is no doubt. And they are going to get worse. Many people live from paycheck to paycheck, and for them, a layoff would be disastrous.

Many entrepreneurs, especially those in the early stages of their business, are also living from hand to mouth. They have put everything into their business, and if things go bad, they lose all.

It would be easy to panic. It would be easy to roll into the fetal position and moan. But if the leader does that, what will the employees do? They will panic and that can bring a quick end to a business.

Employers need to keep their wits about them. Now more than ever, cool heads are required. Every move becomes strategic. Each decision needs to be geared toward the survival of the business in the best shape possible. Whatever cuts are made, the business still needs to do business.

And here is where the leader must be a communicator. Employees need to know what is going on, what the thought process is and what it means to them. They do not need evasion or lies. When there is a lack of information, rumor and falsehood move into fill the void. This is not a time for the grapevine to do damage. It needs to be pumping out a positive message based on leadership's communications.

It is easy to panic. But it is better to seek calm. It is better to get good advice than to run around in circles screaming "the sky is falling, the sky is falling." Some of that advice could come from employees; some from customers; and some from outside advisors. Don't sit on your hands until it is too late.

Act- calmly, positively and in a communicative style. Be true to your vision and values. Do the best you can and do it with a clear head.

Tough Choices

What to do now? You have been cutting cost everywhere you can and you are still losing money. If you are going to make it, you have to do something more. You have never had a layoff before, and you don't want to now, but what else can be done?

This is a tough scenario, one that many will face soon, if they haven't already. No matter how employee oriented a business owner is, there may come a time where this hard choice must be made.  So, how do you do it?

It might be worthwhile taking a moment and reviewing your company strategy and values. You want to act consistent with your values. People will remember any major inconsistency after all is said and done. Your stated values may give you a clue as to how to act. The idea of a layoff is to keep the company running as well and as lean as possible until things pick up. So those who remain behind must be providing valuable services for the company and the customers.

Some options, with associated pro and con arguments are:

• A cut in benefits across the board as a first step.
  • This could be a good stopgap measure but when employees have to pay their own medical insurance, car insurance, etc. they will be reminded of what they have lost and they will feel the impact in their checkbook.
• A cut in everybody's hours or pay rate.
  • This has the advantage of keeping everyone working (at least for now). If your workforce is a true team, they may appreciate this one and rise to the challenge.
    
  • It has the disadvantage of making everyone unhappy with a pay cut. A few unhappy characters can be toxic in the workplace and turn everyone sour. Gratitude for keeping their job becomes a memory, replaced by anger at having a pay cut.
• A straight percentage cut across the board in each department.
  • This shows "equality" of treatment and the employer's willingness to lay off even in "favored" areas.
  • The problem with this method is that it does not take into account where the company needs to maintain its strength. In retail it may be customer facing employees, in a service business it would be those providing the service (unless they are sitting on their hands because there is no business)
• Using a first in first out policy.
  • Offering early retirement to long time employees is an option. This clears out any "dead wood" that may have accumulated. It cuts what might be the highest wages. It makes room for the younger, aggressive employees to move up.
  • The down sides to this method are major. First, is the possibility of an age discrimination lawsuit. Second, you may be ridding yourself of organizational knowledge that does not exist elsewhere in the company. Do you have a sufficient knowledge base that you can afford to lose your old timers? Can those left behind carry on the company business with sufficient expertise?
• Using a last in first out policy.
  • This may seem like the most logical to many people. The newest get cut first. Termination costs will be relatively cheap. Entry level positions are typically held by young people who theoretically have less to lose and perhaps an easier time finding some kind of job. The company is giving up less institutional knowledge.
  • On the down side, you are leaving the higher earning employees alone, so you have to remove many more new employees to get to where you want to be. Does this leave you the right people to get everything done? Will the higher earning employees be willing to perform all of the required lesser tasks? You might be losing youthful enthusiasm and innovation.

There is no right and wrong. Each company may have a different solution. Consider what steps can be taken before a layoff is considered. Take them first. Then choose how you want to handle a layoff in a way that you and your company can best live with.