Surviving Downsizing: A Guide for Business

Business leaders take tough decisions

Reading the news last week about the mass sacking of P & O Ferries was a shock, I thought those days of industrial relations were over. I can certainly relate to Mark Dickinson, general secretary of the maritime trade union Nautilus, who said “I’ve seen some curveballs and some shocking developments over that time… but for a company to treat the legal process in such an underhand and callous way has shocked me.” While I can’t condone the way they have gone about cutting costs, the fact is that this is a decision that many businesses are facing right now.

With rising costs and rates of inflation that many business leaders have never encountered before, what options are there? The one thing I am sure of, is that doing nothing is not an option. Inaction will simply leave the inevitability of insolvency for those businesses whose reserves were already reeling from the effect of the pandemic.

Reducing Other Costs

The first option might be to consider cutting other business costs, it sounds appealing, though identifying truly non essential costs is not always as easy as it seems. Cutting some costs have a longer term consequences. In my experience, traditionally the first budgets under scrutiny are travel, marketing and staff development. Most travel budgets haven’t yet recovered from the pandemic and during lockdown we have all learned to adapt to different ways of working.

Reducing marketing costs risks impacting finding new customers for the future but there are a few ways to reduce marketing costs without sacrificing revenue. These include:

  • Developing a clear and concise marketing strategy.
  • Understanding the customer’s needs and what will make them want to buy your products or services.
  • Creating marketing communications that are focused on the customer and not just on how well your company is doing.
  • Conducting research that gives you insight into the competition, innovation and design of the product so you can be sure it is cutting edge.

Reducing training costs without losing good staff in the longer term may need better selection methods, more focus on new hires and people in changing roles

  • Consider implementing a more blended or computer based training where candidates can take practice tests and review their performance in an online environment,This provides employees with the opportunity to brush up on their skills and work on what they need to improve
  • Tap into current trends to find ways to attract and retain top talent with interesting new technology, such as virtual spaces.
  • Establish a clear career path in which each employee has an understanding of what the next step is along their professional journey and a clear path to get there.
  • Offer mentorship opportunities when starting new jobs or on the job!
  • Have well documented processes

There are some things that you should not cut unless you have to, I would try to avoid anything that directly impacts on customer service, you will struggle to be recognised as a reputable business and risk losing existing customers,.

Rationalising Products and Services

It’s easy for an entrepreneur or small business owner to get distracted by new opportunities or new ideas about how to do things better for their company. The entrepreneur’s objective is to create a great company, not to just make money.

When costs are rising it is a good time to see which products and services are actually returning the most profits and whether there are some that are simply stretching your finite resources too thinly.

Now is a good time to realign or stop delivering things that provide very low or no margins and are / or not aligned with long term strategy.

Enhancing productivity

It may seem counterintuitive to invest in a time of uncertainty but new technology or equipment might allow you to stay competitive with other companies in the industry, or indeed to leapfrog them in terms of cost or levels of service . Even if it means that the company may lose profits for a period of time, something like automation may allow you to grow without increasing your cost base which will increase your margins.

Reducing headcount

Some companies decide to reduce their head count so that they can stay profitable in periods of high inflation. They do this by laying off their employees and hiring freelancers or outsourcing their work to other companies.

I have been through the experience of cutting headcount from both perspectives. Neither was a pleasant experience, but I am happy my experiences were conducted with respect and dignity. I survived multiple rounds of redundancy at one company I worked for, even though I never lost my job, being told that you are at risk is an ordeal and the period of uncertainty is frightening. Not only are you concerned about your own livelihood but the atmosphere are the workplace changes, as people are either trying to justify their role or sometimes seeking to undermine the roles of other.

If that isn’t bad enough, when you see colleagues who you respect and like being forced to leave a job that they liked, there is a sense of survivors guilt, which only gets worse when in due course you are having to pick uo some of what they used to do.

The first time the shoe was on the other foot, I was a team leader in a small company, and my manager told me that one of the team was to be released. I said I would rather tell them myself. I can’t even remember whether they were an employee or a contractor, but I do remember within an hour, going into a meeting with the individual, wholly unprepared, not knowing anything about the business case, their rights or what support was available. It was one of my more stupid decisions. In the event, they took it better than I did.

The next time I was in that position was as an NXD for a start up company that had been unable to obtain investment to fund their research and development phase. In this case, for the directors and the staff there was a long period of due diligence which was ultimately unsuccessful, everyone was aware of the position over the period of months. The company was wound up with the support of an insolvency practitioner, and while I had the duty of speaking to the staff, they were fully aware, and I was equipped with a fully scripted statement by the professionals. For both me, and the individuals, it was a formality that ended many long months of uncertainty and fighting to retain something that we believed in. I had a sense of failure and deep regret for the people directly affected, coloured only by the belief that we had tried everything that we could.

Top Tips

Managing your cash flow is imperative at the best of time, but in periods of high inflation it is vital to know not just what your overall cash requirements are but what your margins are on each product and service line that you deliver.

With this information you can consider what you might stop doing, you may have a growth strategy — but profit margins do not always improve when sales are increased or costs are reduced. There may be an optimum size for your business that delivers greater profit.

If you have a close knit team, you may have a tendency to put off cutting head count for as long as possible. Remember that making small changes early, might protect the whole workforce in the longer term.

If you do find your self in this position, take professional advice, employment law moves at a pace and not following the right processes can cost dearly in terms of money, stress and reputation.

Make your business case clear, give your workforce credit for understanding the circumstances. Keep uncertainty to the minimum that you can within the requirements of the legal process and be respectful and honest.

Originally published at https://www.high-water.biz on March 20, 2022.

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I am a business owner, it only took me 50 years from idea to conception — these are my reflections on the journey.

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Helen Mill

Helen Mill

I am a business owner, it only took me 50 years from idea to conception — these are my reflections on the journey.