My first business revealed to me just how important your team is to your growth plans. I thought I was ready for an expansion, and went from one to two day spas/hair salons: one in Maryland and one in Washington, D.C. Each salon had different clientele and, in fact, two very different cultures. They also operated a bit differently. In Washington D.C., the stylists did not typically work with an assistant unless the day was extremely full. The stylists in the Maryland salon—whom I hired from a salon with a very different style—had the assistants work on every client.
In 2009, when the economy was doing its own version of downsizing, I closed the Maryland location and consolidated all those team members to the D.C. salon.
The first month of the downsizing brought with it more revenue, but less stability. The team members who hadn't used assistants before now wanted them, and the cost for those additional employees affected the bottom line.
In addition, all the team members experienced stress because they wondered what the implications would be of the downsizing after an expansion. Were we going out of business? How would they and their clients be impacted?
I did everything to reassure them, however, I could not make guarantees about the future. Based on the conflicting cultures and the inherent uncertainty that existed, along with the fact that I had not fully analyzed the implications of expansion and downsizing, I experienced a massive pushback and walkout from several team members. I had to close the doors and eventually filed for bankruptcy.
My experience underscores a truth in business: Team members are one of the most salient factors a company can analyze when considering big restructuring decisions.
If you've realized your expansion isn't going as well as expected, downsizing may be an option to consider. But, as I've learned, downsizing doesn't immediately mean success. Here are some factors to consider to help ensure the most favorable outcome for your firm:
1. How will downsizing impact the productivity of the remaining team members?
Job security is a vital asset that companies provide their team members. When a company removes that asset, it is natural for an employee's attention to shift from productivity to their own financial security.
One thing that can help combat that human reaction is reestablishing security, whether it be monetary, such as an increase in pay, or contractual, such as a position promotion. Whatever it is, it must be weighty enough for the employee to regain confidence and trust so that productivity can once again be a priority.
2. What are the not-as-immediate advantages of downsizing your company?
Beyond cash flow and reducing costs, what other advantages will the company experience that will offset the downsides of downsizing? If the only reason you are considering downsizing is to cut expenses, that may not be a good enough reason to take such a dramatic step. There may be advantages to downsizing, such as intentionally shutting down in a market that no longer is profitable, or by contrast, if a market has changed the way it does business, like a retail store looking to increase online traffic. Seriously review your expenses and lines of credit for other financial relief for alternatives.
3. What is the company doing to ramp up the sales pipeline?
This is an important issue, especially with businesses who do work with the federal government.
If your team is exclusively focused on working on the project and not the sales pipeline, its productivity may have a limited shelf life. If the company doesn't have any work, it may have to downsize or close eventually, so the business development team needs to be proactive to help prevent those scenarios.
4. What are the direct effects to the company culture and how will you adjust and prepare for that change?
Who are the hearts of your firm's culture? Human dynamics are truly at the heart of all businesses, and an owner needs to be an expert in understanding his or her people and how change can impact them and the culture.
Creating opportunities for discussion and collaboration with employees, well in the advance of efforts to downsize, can help improve a company's success during such a transition.
Read more articles on planning for growth.