July 24, 2014

small business advice

Letting Workers Go

Jerry Osteryoung | 12/29/2008

I am convinced that the world is not a mere bog in which men and women trample themselves and die. Something magnificent is taking place here amidst the cruelties and tragedies, and the supreme challenge to intelligence is that of making the noblest and best in our curious heritage prevail.
— Charles Austin Beard


At JMI, we have Entrepreneurial Roundtables where ten non-competing entrepreneurs get together for lunch every two months, and we have about six of these groups. These roundtable discussions frequently provide the basis for my articles.

At our last Roundtable, the discussion focused on letting employees go — a topic that all of the participants were concerned about. Letting an employee go is never easy, but it is particularly hard when layoffs are done because of economic conditions and not because the employee has done anything wrong. In scenarios like these, the economic conditions mandate workforce reductions just so that the company may survive.

Before even considering letting any worker go, it is so important to exhaust all other possibilities for reducing costs. There might be subcontractors or other expenses that can be cut or reduced. In an economic downturn, I believe that staff should only be let go after every avenue of reducing costs is explored.

Despite your best efforts to cut other expenses, there might come a time when reductions in your labor force become necessary. With regard to layoffs, I think that so many entrepreneurs make the mistake of trying to be too nice or procrastinating, and it frequently costs them dearly.

We just met a construction subcontractor who was trying to keep his business going so he would not have to lay anyone off. He now has to file for personal bankruptcy. Had he made the necessary cuts earlier, he would be a much smaller business, but he might still be around. Clearly, waiting to make necessary cuts is not a good plan.

In today’s environment, it is not going to come as a big surprise for your staff when you start to lay people off. In the case that the situation calls for reductions, it is so much better to have one large layoff rather than a series of small ones. A series of small layoffs makes your staff worry about when the next one will be, regardless of what you tell them. Whereas, one large layoff allows them the security of knowing that the axe is not going to fall again too soon.

If you do have to lay off employees, it is so important that you explain that it is not because of their efforts that you are laying them off. Rather, it is because the economy is down and you just cannot afford them right now. In this type of exit interview, try to be positive about the person’s accomplishments and, if you can, tell them how you are going to help them find a new job.

Now go out and make sure that you have a plan in place for staff layoffs should the occasion warrant such action. Frequently, it is useful to try to figure out what triggers would make it necessary. For example, if sales drop by 30%, I will have to lay off 10% of the workforce, etc. Having this type of plan will take the emotion out of these very tough decisions.

You can do this!

Jerry Osteryoung is the Director of Outreach of the Jim Moran Institute for Global Entrepreneurship in the College of Business at Florida State University, the Jim Moran Professor of Entrepreneurship; and Professor of Finance. He was the founding Executive Director of the Jim Moran Institute and served in that position from 1995 through 2008. He can be reached by e-mail at jerry.osteryoung@gmail.com or by phone at 850-644-3372.

Tags: Florida Small Business, Entrepreneur

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