10 Lessons Learned from Downsizing a Business

DownsizingFor more than 25 years, the family business I was tasked to downsize had made it a policy to never layoff anyone.

However, there finally came the day when it was necessary to break the policy.

The business was being hammered by imports from China and the only way the company could survive was to lower the overhead and reduce the head count.

Developing the Game Plan

In order to identify a course of action, we started by reviewing the financials and modeling different scenarios for overhead and worker head count. This was quite mentally challenging. Being a family organization, there was a lot of emotion from all the parties involved. There was a union, long-time employees, and family members that would be directly impacted from the decisions made.

After an emotional week of going back and forth on the numbers, our core team agreed on the production number we could support and the dollars needed to be reduced in each of the categories. We then translated those numbers into head counts and worked out a plan to downsize as efficiently and compassionately as possible.

3 Weeks and 3 Components

We agreed the plan should be executed within three weeks to ensure it could be done in a timely manner as to not draw out the emotional impact it would have on those involved.

There were three components:

  1. Reduce unneeded expenses.
  2. Reduce management head count to the agreed upon number.
  3. Reduce the employee head count to the agreed upon number.

We started with management. We had several meetings and discussed the problems they already knew existed and elicited their support. We told each department what it’s final head count needed to be and for them to come back and meet two days later with their recommendations. Communication was vital at this time. We outlined to management why all discussions were not to be discussed with anyone. We kept our promise to keep them up to date on everything. We explained as thoroughly as we could how we were working to save the business. We educated them that, even though some individuals would lose their jobs, the company would be saved and the majority of the jobs would be saved instead of losing all jobs.

Management Pushes Back

Two days later we met with the managers only to learn that none of them had been capable of building a plan because they didn’t want to let anyone go. We ended up working with each supervisor on an individual basis to come to agreements on head counts. To be fair, we worked out unique solutions like sharing a particular employee that we did no want to lose between different departments. In the end, there was a lot of creative compromise. We realized it was a people business and to be successful everyone had to buy into the program.

Union Surprises Us

The next part was the toughest. We met with the union representative from each department and explained the situation as to why we had to reduce some jobs to save others. We found out fast that everyone already knew something needed to be done because the employees’ hours had been reduced. In short, they knew the business was in financial trouble.

One of the union stewards stood up in our last meeting and said she knew we were doing everything we could and they appreciated our efforts to keep the factory open. This came as a big surprise. I had to turn around in the meeting and take a moment as it brought tears to my eyes.

Baseball Analogies Help

Going forward, we set up a daily meeting to review every expense and deleted those that were unnecessary. We also setup a monthly meeting to review all expenses in the future.

In our first weekly meeting, there were a lot of questions from management. We explained it was like a baseball team. We had to have the top players in each position. It wasn’t that he or she wasn’t a good employee, it was simply that he or she wasn’t the number one employee. We could only have the number one player in each position. We wished each of them good luck, explained to them their severance packages, and told them we would give them any recommendations they would need. It is not easy to tell a long-term employee goodbye, but we did it with as much respect as we could.

The following Monday morning, we arrived early to settle any problems that might arise. It went better than expected because of all the pre-planning. Within the week, it was business as usual.

10 Lessons Learned

I wish I could say that’s the only downsizing I’ve had to conduct. Unfortunately, it’s not. However, I’ve handled them all the same. Here are 10 valuable lessons my experiences have taught me:

  1. It needs to be done swiftly and at one time.
  2. You can never do too much planning.
  3. Everyone needs to buy into the program.
  4. It is always emotional.
  5. Everyone always knows what’s going to happen before it happens.
  6. There will always be problems that need to be worked out.
  7. You have to do what is needed in order to save the rest of the jobs.
  8. It is never easy to do.
  9. You are dealing with people and always have to put yourself in their shoes and treat them with respect.
  10. It never gets easier, but the first time is always the toughest.

Bonus Lesson #11: Don’t Go it Alone

The one last piece of advice I can give is simple: Seek guidance from someone who has done it before. They can help you manage the emotions and make the best possible decisions. They can also help support you as you deal with this challenging experience in your career. Everyone needs a coach – especially, when navigating a large business problem for the first time.

Image Credit: Shutterstock

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About Larry Putterman

Technology Executive specializing in next-stage growth and competitive advantage strategy. Serial entrepreneur, CEO, and board director. Husband, father... and major fishing and golf enthusiast!

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  8. Mark J. Flagg says:

    Larry, very solid strategy and listing of key lessons learned. As a veteran (unfortunately) leader of several down size events, I would add another lesson to take heed to. That is to be Consistent in the methods used to determine who stays & who goes and severance packages. The methodology may differ between firms but within a single firm consistency is needed because like it or not a president will be set. A union CBA may or may not specify the methods or require seniority rules, or even severance amounts. Union or non-union, being consistent does make your decisions repeatable, supports/justification for decisions, and mitigates damages when the litigation comes. Reducing work force numbers is eventual in almost every firm and some even have cycles of boom & bust. We always prefer the boom part and work very hard to sustain it. When the time comes to down size again, review the method/process utilized previously. You can be sure that many of the employees will remember how it was done, what those separated with received in cash, etc…
    Good work, Cheers.

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