If the Sky is Falling, Say So





Two weeks ago our local newspaper reported 40-some employees arriving Monday morning at a local restaurant to find no jobs, just a sign on the door, the business had closed. Last week the same paper reported the same thing with a printing company that had 85 employees: Monday morning, sorry, company’s closed, jobs gone.

Come on please, owners and managers, grow up. There’s a recession on, and that’s only if we’re lucky and it’s not worse, this is no time to play pretend games with your employees. Nobody wants to be told things are fine when they obviously aren’t.

I learned this the hard way, in the last recession, back in 2001. Our sales tumbled right along with the NASDAQ during the dot-com boom. Eventually I had to lay off five of our 33 people in a single day; but I waited too long. And I had underestimated, while I was waiting and hoping, how much the rest of the team would pitch in, as soon as I recognized we were in trouble.

I know that when you put off the bad news you’re doing it for the right reasons. You don’t want people looking sideways, wondering who’s going to have to go.

On the other hand, imagine how much anger and resentment when things fall apart, and suddenly the whole place is gone. I wasn’t outside that restaurant that Monday morning, or outside the printing business the next Monday, but I can pretty well guess how much anger and resentment. The employees standing there out in the cold had to be double angry and resentful about not having advance notice. Right? 

Nobody wants to be told not to worry when things are bad. If you are in charge, they want you to share your worry with them, treating them like adults.  If you do, they’re likely to feel part of the team, and pitch in and help.

Here’s a tangent, maybe useful to you: The other thing I learned back in 2001 when I had to lay off five people at once: I thought that would be the hardest thing I’d done as an owner, but, surprisingly, it ended up easier to lay off five people the same day than what is the hardest of all things an owner does, which is letting one individual go. At least that day I let five people go, none of the five took it as a personal failure. The hardest thing I ever did when I was in charge was to let go somebody who had to go because of poor performance, but had been trying, with a good attitude. That one still hurts, years later.

Anyhow, back to my main point: if you’re a business owner, with employees, don’t think you’re doing anybody a favor by not sharing your worries. 

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Tim Berry, Entrepreneur and Founder of Palo Alto Software, bplans.com and Borland International About the Author: Tim Berry is president and founder of Palo Alto Software, founder of bplans.com, and co-founder of Borland International. He is also the author of books and software on business planning including Business Plan Pro and The Plan-as-You-Go Business Plan; and a Stanford MBA. His business plan coaching site is at bplanscoaching.com

18 Comments ▼

Tim Berry Tim Berry is Founder and Chairman of Palo Alto Software, Founder of Bplans, Co-Founder of Borland International, Stanford MBA, and co-founder of Have Presence. He is the author of several books and thousands of articles on business planning, small business, social media and startup business.

18 Reactions
  1. I couldn’t agree more Tim. Any employee would respect their employer more if they felt like they were in it together. Treat your employees like the grown adults that they are. They can handle knowing your worries better early then when it’s too late and their unemployed. I would rather have a little heads up than be blind sided.

  2. Tim,

    Sadly, the “close without warning” behavior is par for the course with small restaurants. They often do that even in good times. The reason: they’re afraid all their wait-staff and other help will just not show up the last week or two.

    Restaurants do it even when the restaurant is being sold and the owner is walking away with a nice payoff. I know of one case where the business broker that arranged the sale actually advised the owner not to tell the employees until after it was closed. Sad but true.

    Anita

  3. I just wanted to add this: in my corporate days I was head of HR for a corporate division for a couple of years. In that capacity I was involved in — and had to deliver the news of — literally hundreds (maybe more) of terminations and RIFs or “reductions in force.” It’s never easy. It can be wrenching, especially when it’s people you just had lunch with or whose wedding shower you attended last week, who you realize are going to be terminated.

    But one way I advised dealing with it is to recognize that you are looking out for ALL your employees. Just like Tim says, you’re protecting employment for large numbers of people by cutting some. Harsh, but true.

    The difficulty that I see with very small businesses of under 10 employees, and especially those of under 5 employees is that it’s often hard to cut staff without cutting your business off at the knees. There’s just not enough staff there.

    I suggest that in those situations you might want to examine alternatives. I know really small startups that have survived by takng pay cuts, cutting out benefits, letting people work from home, people moving from full- to part-time, the founders taking on consulting work, terminating outside services, and so on.

    Last year I interviewed Laurel Touby, founder of Mediabistro, and she spoke about how the whole team took pay cuts and found other ways to save money, to survive the DotCom bust.

    Other creative alternatives can work, too. One startup founder I spoke with last week is having trouble getting another round of funding. So the software development team is hiring out their services to do development projects. Key members of the software team are calling up their contacts at corporate development shops and asking for projects and promising quick turn around. The software team is working extra hours to get the projects done, so that they can keep their jobs in this environment.

    You’re going to have to be really creative if you want to avoid terminating people (or not have to terminate so many).

    Whatever you do, act fast to get the news out. The longer you wait, the worse it gets. And the harder it will be on you emotionally.

    Anita

  4. Great article and thanks for putting a human element on the way companies shut down. By being so transparent, you also open the opportunity for your team to bring forth ideas and cost-saving strategies – ones maybe you as an owner don’t even notice. If you’re open with the people around you, you’d be surprised how often they’ll go above and beyond to make things DON’T go down. However, do it early, otherwise the well can run dry. @bizcoachdeb

  5. I agree Tim. Recently one company here started laying off 7 people each everyday. They told the employees that they are going to lay off 120 people. But I didnt like their strategy just because they kept on selecting 7 employees everyday and tell them in the evening, just before the end of office hours that they are not supposed to come to office from the next day onwards. It created a lot of panic in others. The worst part is that this company was not at all affected by the economic crisis. They did this just as a precaution.
    I think in this situation, they should have informed all the 120 employees together to avoid panic in others. This issue created a lot of noice in the media later too.

  6. Anita, Amanda, Deb, Johns, thanks for the comments. I’m still amazed at how often this comes up, even though it does seem pretty obvious. After posting this earlier today, a friend just linked me over to the same local paper I cited, a new story about a second printing company that did the same thing, with 46 employees, also last week. Enough already!

  7. I remember the tough times in the beginning of the 90’s when I had worked for a couple of years and then about 10 years later after I have been studying and working in the U.S. Nowaday’s is the same situation. Could it be boom & bust cycles of about 10 years? Right now, the manufacturing industry is in deep trouble. Take for example Volvo laying off people on a regular basis.

  8. One major shipper anounced they were pulling out of the US. The driver that usually picks up my packages now shows up about 50% of the time. I began dropping my packages off at a local delivery store to ensure that my packages would be delivered. Speaking to an employee at the store, they mentioned that my driver picks up at their store, but goes into the back room and sleeps for an hour and a half each day.
    I’m not saying it is right to wait to tell your employees you are closing until you have done so, However, if you do, you may be harming innocent customers.

  9. Unfortunately I’ve worked through a couple of recessionary periods – I have a feeling this one is going to get worse before it gets better. Last week, one of my clients canceled the company’s annual Christmas party, froze salaries, cut shift premiums and laid off 10% of his staff. Unfortunately if he doesn’t communicate to his employees what’s happening and why and ask for not only their support, but their ideas in cutting costs and raising income, there will be more staff cuts to come.

  10. Without reading this article and Anita’s experience in terminating employees would have remained me one sided — the employees’ side. I really hated those businessmen who find terminating people as easy as it seems just to save their money. But that was before. This article really awakened me and made me realized how difficult it is for business owners to do this to their employees.

  11. Letting an employee go is never easy. I agree that it’s even harder when you know an employee personally or even know the details of their personal situation.

    Though perhaps sometimes necessary in certain industries I think the worst possible scenario for all involved is when an employee has no idea a termination is on the way. From my experience the worst scenario for actually having to let someone go is a meeting on Friday that finalizes the decision to terminate on Monday.

    As someone else I think mentioned earlier I have found that it’s actually easier to let two or more people go at the same time than the classic one on one scenario. Giving someone that news is nothing anyone wants to do. So if there is a way to make a termination easier and less painful for all involved I think managers and business owners alike have a duty to make that happen.

  12. I’ve been on both sides in several cases. As an employee it WOULD be easier and fairer to make decisions based on reality. But in most cases the owner/manager CAN’T honestly let the rank and file employees (or customers, partners, etc) know what’s really going on with the company. (Not to mention the many, many cases where the owner doesn’t really KNOW what condition the company is really in.)

    Tell folks things are going down and the effort level goes way down. Productivity falls 75% within days. The employees who can jump ship do. These are the very people who would be essential to sparking a turnaround or taking over after a buyout.

    Word spreads quickly. Vendors stop extending credit, and customers stop placing orders…or they stop paying. Banks call their notes.

    ANY chance of recovery or acquisition goes down the drain. Investors sue for big money and the owner’s reputation and future ability to start ventures goes away.

    The business owner has a delicate balancing act to play between the ongoing prospects of the company, its employees, customers, vendors, investors, etc.

    It’s like the last few seconds of a basketball or football game where the losing team starts making desperation plays, calling timeouts, and doing whatever they can to increase the (however unlikely) chance of some miracle happening.

    Tipping your hand and telling your employees (and customers, vendors, bank, and world) that you’re going down reduces that chance from 1-2% to 0.

  13. Greg, interesting, and good to see a strong position in the opposite direction. What you’re suggesting is very much what a lot of us worry about, so where’s there’s smoke there’s presumably some fire too. But I will tell you that — at least in my experience — it didn’t happen that way. People pitched in when they knew we were hurting. What makes this topic interesting is there’s no clear right answer. Tim.

  14. Well as expected this is a mind boggling article because as for me, I am torned between two parties. But of course, if am the business owner — even how hard is letting go of our employees we have no choice but to save our business. Let our business grow again and hire people again in the near future.

  15. Well, you will never know Arthur unless you’ve tried both.

  16. I think it goes back to the size of your business and the relationship you have with your staff to begin with. In a small business with under 20 or so employees, if you’ve had good ongoing communication with staff over time, I believe they are more likely to stand behind you and dig in to help when business goes south. I keep my staff informed, in a general way, about the financial status of the company on a quarterly basis, continually, so there’s no surprise when we’re in a pinch. I level with them well in advance, we tighten our belts, everyone steps up sales efforts and is on the lookout for opportunities, and we’ve taken pay cuts across the board to weather the storm as a group once in the early 90’s. Information is key — I believe that withholding it creates more fear, poor job performance, and the tendency to jump ship than sharing the other way around.

  17. Costs related to having to lay people don’t stop when employers reduce their workforce. A smart employer will have a program in place that will help those who are being terminated get from unemployment to re-employment as soon as possible. Career transision is a means for the employee to find employment as soon as possible making the loss of their job less devastating. It will also save the employer money. I would think in these hard economic times that we would see more being done to make this transition.

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