When Do I Need to Downsize my Business?
When my previous business was in a tricky financial situation, I wish I had spoken to an outside perspective about the possibility of downsizing our team. It was an incredibly difficult decision, but we needed to pull back. Hindsight is 20/20, and the signs we needed to adjust the team had been there for months. I just didn't know how or when to make the final decision.
To pay forward that unpleasant time, here are the red flags I wish I had paid attention to in the months leading up to downsizing the team:
1. Paying your team before you pay yourself
This is a HUGE red flag. If you are paying your team first, that could be a sign your team is too large for your business' revenue or there may be other costs you need to cut first. Either way, this is a sign that something is out of whack with your finances.
Even if you have budgeted for this and are personally OK, it's time to make sure you have a clear cut off for how long this situation lasts. Your business needs to support you or it won't be sustainable long term.
2. You are finding tasks for your staff instead of them serving your key business objectives
Maybe your objectives have changed, in which case they may be aware of the mismatch and be relieved about parting ways. There may be a skill gap that you are trying to fill with people who aren't quite right out of loyalty. While this is very commendable, and something I always appreciate in a working relationship, it's not a sustainable way to run or grow your business.
When the job was made, you had a plan for the role. If it's not panning out, or you are spending lots of time working out and planning extra tasks for them instead of them supporting the running of your key objectives, then it's time to revisit the role. Does it still fit? Can they contribute to the work that brings in the majority of your income? If not, that's a sign something needs to change.
3. Your business model needs to change, but keeping the whole team means it can't
Businesses evolve and adapt, and sometimes that means downsizing, focusing in, specialising, or pivoting. Sometimes these changes mean streamlining to refine before growing again.
In this case, your existing team may not fit the long-term goals, or the change in direction may mean the costs are too high. This can feel really hard, but when your business's long-term survival is in question we sometimes need to make these difficult decisions.
Downsizing 101
If you're thinking you need to downsize, here are a few things to consider as you plan the approach:
1. Check contracts
Letting go of an employee is different from ending a relationship with a contractor. It's important that you understand the legal implications of your decision before you start downsizing.
2. Prepare for the conversation
No one wants to have this conversation. I have to have it 3 times in one day, and I didn't sleep or eat properly in the days leading up to them. It was uncomfortable, but by preparing in advance I knew the message I needed to share. Make sure you:
Are as clear and transparent as possible
Have this transparency reflect in their final notice and confirming when their final payment will be
Be kind and show gratitude for all their time and effort
Personally, I’ve always believed honesty is the best approach. When I had to downsize, I was truthful with my team. I told them that it wasn't because of them or their skills, but because the business wasn't performing financially. It sucked, but I'm still in contact with all of them and have worked with one of them several times in the years since!
3. Look after yourself
If you didn't care about your team, I doubt you'd be reading this blog. It would be weird if you didn't feel guilty about making this call, but that doesn't mean the guilt needs to consume you.
No matter how difficult the decision, we can choose how we deliver the news. Showing gratitude and integrity will help you and them navigate the end of the business relationship, while providing the human reassurance needed to effectively see out the end of their work with you.
Make sure you take time for yourself to heal, talk, and process your experience with outside support so you, in turn, can help your team member through their handovers and final tasks. It's normal for you to need support through this, but they aren't the people who can (our should!) offer it!
If you've made the difficult decision to downsize your team, I'm proud of you for doing the hard thing. It's a gut wrenching thing to do, but may allow you to save your business, your own financial security, and your wellbeing – those are ALL worth saving.
And if you take one thing away from this blog, make it this: make sure you thank them and say goodbye on their last day. Showing genuine appreciation for everything they have contributed helps them move on positively, and helps you find some closure on the working relationship on a positive note.
