6 things I would have done differently as a CEO to avoid layoffs
I sat across from one of my favorite employees at an off-site coffee shop 30 minutes before the workday started. Our untouched coffees stained the table as we sat, crushed by the moment's weight. It wasn't a mystery. We both knew why we were there. I'd rehearsed the moment in my mind 100 times, but I hesitated to locate the right words as I began to talk. The brutal news stumbled out, "We need to let you go. I'm so sorry." As expected, she took it gracefully, but I was broken by the truth; my business management had put her on the receiving end of a life-altering, devastating moment. What could I have done differently?
Hindsight is 20/20, and as a 29-year-old first-time business leader, I gave QALO all of me, but nothing takes from your bottom line, like unrealistic expectations and poor management. I was guilty of both. To be blunt, layoffs are frequently found at the end of optimism. As a leader, you want to run hard, employ people, and care for them; in some cases, that optimism doesn't pan out.
🔉 Layoffs are found at the end of optimism.
Layoffs are the result of a collision between the market and management. A forgiving market can cover for poor management, and a brutal market can be sustained by exceptional management. But when they collide, the two negatives create a positive outcome for the company and a negative one for its employees, which is why it reflects so poorly on leadership and should be a last resort for CEOs. It's people's lives you're messing with, but the harsh truth of layoffs is that companies are often healthier after they do them.
I regretfully found myself in this situation years ago, and you may not be running a consumer goods business, but I thought it would be helpful to let you into my head on 6 things I would have done differently to avoid layoffs:
I would have made profit the priority from day one
You may read this and say, "Another CEO campaigning for profits at the expense of its people." Hardly. Healthy companies don't do mass layoffs. It isn't a binary decision between being profitable or caring for your people. Focusing on profit from day one saves you from desperately cutting fixed costs for it by firing people years later.
When we are obsessive about doing more with less, we become good managers who elevate our people, provide them with opportunities for growth, and save ourselves from overhiring, which is the root problem. Greater output from fewer inputs.
I understand operating at a loss can be necessary for a time, but it is a slippery slope, and companies go up like stairs and down like elevators. As the CEO, you need a pathway to profitability. I would rather rely on my profits to keep my business going than repeatedly ask investors. Your world will change when you shift your thinking from growth at all costs to can we grow with fewer costs? I've got a newsletter coming out soon about what to stop bragging about as a CEO, and revenue is at the top of the list. Making $1M on $3M of revenue is much less stressful as an entrepreneur than making $1M on $30M.
2. I would have stopped stockpiling inventory
Asset accumulation negatively impacts cash flow. At QALO, we had too much inventory due to irresponsible minimums agreed on with our manufacturer and too many SKUs (who would have known there's a range of 14 sizes with wedding rings). The challenge of selling a consumer good is you can only make money with inventory, but you run out of cash with too much of it. Pay attention to your cash conversion cycle and have a solid demand plan based on new customer acquisition, repeat purchase rates, and lifetime value.
3. I would have stopped pretending competition didn't exist
As a first mover, we became the elephant in the category. If I was going to eat an elephant, I, like Desmond Tutu, would eat it one bite at a time, but I would also start with a back leg the elephant can't see. Then one day, that elephant will fall without realizing it was ever being eaten.
4. I would have set income statement caps
I view an income statement (profit and loss) as a set of percentages showcasing my resource allocation. I would have gone back and treated my payroll, operational expenses, and marketing spend with the same ceiling a sports team gets with a salary cap. This category can be X% of revenue - you have this much to spend. It's non-negotiable. Do the most with the amount you have available to you. We don't pull from profits to fund our optimism.
5. I would have let 1 go for the sake of the 99
I thought caring for people was employing them. Caring for people means providing them security through active management and keeping the lights on at the company they rely on to pay for their lives. I made the mistake of keeping people for too long who were great culture fits but weren't in a role we needed at the company or who the company had outgrown. I would have audited my org chart every quarter and asked myself, where is my compassion keeping me blind? Employing the 1 person the company doesn't need today may lead to you laying off the 99 tomorrow.
6. I would have turned rocks over in the good days
When things are good, no one wants to be the buzzkill. We're waving our fingers in the air to the bartender ordering another round. But if our core responsibility as leaders is to protect the people under our care, shouldn't we be as brutal in providing security in moments of trouble as we are in moments of safety? Being liked is an immature desire. People may not like you asking, "How can we remain lean?" when the company is going up like a rocket ship, but they'll respect you as a leader when the company plateaus and you aren't doing layoffs. Respect should be our aim.
This list below is as discouraging as it is opportunistic for CEOs whose companies haven't overhired in the last 12 months. If you're a leader looking to hire, use this list to learn about the companies, find a laid-off employee on LinkedIn and give someone their next great opportunity.
https://layoffs.fyi/
