Hard times require
leaders to look at the human capital side of the business because
it represents one of the largest costs in their economic model.
And for those in the training and education business, this can be
a particularly scary time as education budgets are often the first
to be cut.
Contrary to most
firms’ initial reaction to the recession, the two best things
to do during a downturn are training and marketing. Even if
there is fear these groups will be scaled back, you can use the
recession to reevaluate your human capital needs, reduce staff to
well below break-even and upgrade the quality of your people with
those available from other layoffs. Then, invest heavily in those
left and get everyone involved in sales and marketing. What you’re
doing is getting ready for the recovery. You’ll have a well-prepared
team and an increased mind share. Overall, cherish the temporary
downturn as “the pause that refreshes.”
A couple years ago,
fearing a recession when the financial markets collapsed, we interviewed
several well-known and successful business leaders who had lived
through several downturns in the economy. Because most of our clients
aren’t old enough to have experienced a recession, including ourselves,
we wanted to learn from those who had been there and lived to tell
about it. This article will look at some innovative companies and
how they made a downturn into an opportunity for the better use
of better people.
Downturn as Opportunity
Cherish a downturn.
Most business leaders, tragically, fail to find the time to re-evaluate
what’s going on in their company and what they’re doing. This has
been particularly difficult during the Internet era where time seems
to have become our most precious and scarce resource.
In the early 1970s
George Naddaff, founder of Boston Chicken, had a
company that was building day care centers called the Living and
Learning Schools. He had built about seventy of them. They were
beautiful and the company was doing well. Then in 1973 interest
rates jumped to 22%. All of their buildings were financed, of course,
and they were on variable mortgages. Overnight the company was in
However, it turned
out to be good because of what Naddaff now calls “the pause that
refreshes.” Instead of continuing to run downhill at 90 mph, he
had to stop and rethink everything they were doing. Rather than
continuing to build, he changed the direction of the company and
began franchising the concept.
That might never
have happened if the slowdown hadn’t come along when it did and
made him rethink the business. When you’re running too fast, you
never find time for the luxury of taking a good look at what you’re
doing. Cherish a downturn and use it to re-evaluate.
Now is the time to
get lean using what Bill Gates calls “one-minus
staffing” (one of the reasons Microsoft averages $250,000/employee
in profit). Figure out the bare minimum number of people you need
for a project or area or for the entire firm, cut to the absolute
muscle and bone, then take out one more. This keeps everyone laser-focused
on priorities and actually reduces the complexity of what they’re
doing since there are fewer people involved. Then take part of the
savings on wages and give raises to those who are left or reassign
people to launch new initiatives that will be valuable as you come
out of the recession.
If you’re going to
make cuts, do it quickly and deeply. Warren Avis, legendary founder
of Avis Rent-a-Car,
would never wait until tomorrow. He would cut back in any month
that was bad. Waiting too long drains valuable resources you could
be using to invest in the remaining team and marketplace.
You also want to
cut deep enough so you won’t have to do it again. In bad times,
people become afraid of losing their jobs, which can impact performance.
So make the changes now, then gather your people together. Let them
know you’ve cut deep enough and that you’re committed to keeping
them employed if you can and that you need their help. “That’s one
of the secrets when a downturn comes. If you’ve kept the quality
people, you can gather them around the table and look at the options
together,” notes Norm Brodsky, founder of six businesses, one of
which made the Inc. 500 three years in a row and another which made
Inc.’s 100 fastest growing public companies list.
One Great Person
Replaces Three Good
What do IBM in 1914
and the Container Store in 2001 have in common? When Thomas Watson,
Sr. joined a failing conglomerate called Computing-Tabulating-Recording
Co. in 1914, the first thing he did was borrow money to fund in-house
education programs, abolish piecework, spruce up factories, and
pay above-average wages at all levels. Focused on human relations,
but lacking additional funds for generous benefit plans, he staged
picnics complete with a band and theme song to boost morale.
Speed ahead to 2001.
Fortune Magazine chooses the Container Store (a retailer!) as #1
of the “100 Best
Places to Work for in America” for the second year in
a row. Keys to their success include 185 hours of training the first
year (versus an average of 7 hours for the industry) and above-average
wages. Their fundamental philosophy is that one great person can
replace three good people. I find it fascinating that these two
industry leaders, at radically different times, placed their bets
on training and above average wages.
Again, cut deep enough
so you can take half the savings from the one-minus staffing approach
and re-invest in wages and training, then pocket the other half
to boost profitability or invest in sales and marketing. Or borrow
money, if you can, and do the same!
NOTE: Check out the
Container Store’s website www.containerstore.com
and click on “Careers.” Scroll down and you’ll see their history
(started 22 years ago, still owned by Kip and Garrett, $194 million
last year, growing 20% per year) and a great list of things a company
can do to make their workplace the “Best” place to work. This is
a site worth viewing. If a retailer of organizing tools can do it,
all of us can do it. Get your economic models cranking so you can
do twice as much with half the people and then pay them more.
Every Tuesday Night
The Oct 16, 2000
issue of Fortune magazine had an excellent article “Behind Every
Great Man is a Great Manager” about Ben Horowitz, CEO of Loudcloud.
Their founder, Marc Andressen, clearly states he is not a manager
and was looking for one when he turned to Horowitz. He knew Horowitz
was a great manager from their days together at Netscape where Horowitz
ran the directory and messaging departments, among Netscape’s biggest
and most successful groups.
To quote Fortune,
“Horowitz’s goal at Loudcloud
is to groom talent that can deliver. To this end, every Tuesday
night he hosts a career-development meeting for top managers, where
he leads discussions on such topics as ‘Management 101: Managing
at Loudcloud’ and ‘Management 102: 1001 Ways to Keep Your Employees
Happy.’ This is basic education, but in the Valley it’s almost revolutionary
stuff. ‘Most of the managers are here for the career-development
part of working with Ben,’ says vice president of marketing Scott
Dunlap, a former Netscape intern who followed Horowitz to Loudcloud.
‘I can’t tell you how devoid Silicon Valley is of career development.’”
To facilitate this
career development, Horowitz instituted weekly meetings every Tuesday
night. These helped focus on success and tackle problem areas before
they became problems.
“The Tuesday night meetings are MANDATORY; Horowitz isn’t letting
his managers slack off. ‘I have a lot less tolerance for manager
incompetence than I do workers,’ says Horowitz. ‘If an employee
is having trouble in his personal life and is not producing like
they used to, I give them leeway. If a manager starts slipping,
I remove him. He won’t be a manager for long. Not here.’”
understands the need to take an hour each week to grow management.
And the top managers participate—this isn’t just for mid-level and
frontline managers. Just taking that hour can be invaluable.
Fewer People Trained
Fewer people, trained
more with higher wages focused on sales and marketing and operational
excellence, can make a huge difference. Great advice anytime, but
particularly useful during a slowdown. Cherish this opportunity
to reevaluate what you’re doing, keep and recruit only great people,
get wages up and train, train, train while you have the time. Then
get ready for a great second half of 2001.
C. Harnish is the founder of Young Entrepreneurs Organization (YEO)
and creator and chairman of the MIT/Inc./YEO “Birthing
of Giants” executive program. He is also the founder and CEO
of Gazelles, Inc., a corporate
education company for fast-growth, mid-size firms.
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