MBA1765 Q&A Wednesday: I need to make some layoffs. Any advice?

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Hey O. Welcome to the $100 NBA Show. Straight, straight to the point business advice delivered every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my partner back in 2014. And today's episode is Q and A Wednesday. On Q and A Wednesday, I answer a question from one of you, one of our listeners. If you have a question you want to ask, just email me over@omar mba.net Today's question is from Will and Will asks, this past year in my business has been really really tough with COVID and the economic turndown. It's been really tough to stay afloat and my margins have been razor, razor thin. I'm at the point where I need to start cutting some expenses and I'm going to need to lay off a few of my employees. It's really the only way I see I can survive as a business. I do believe we'll be able to turn it around in a few months. But but right now I need to make some layoffs. Do you have any advice on how I could deliver the news and tell my loyal employees I'm going to need to let them go? Thank you so much for your help during this tough time. Sincerely, Will thank you Will for asking this question. I want to first say that you are not alone, Will. There are so many businesses just like yours that have really tried to hang on as long as possible before making a decision like this. And in today's episode I want to give you some entrepreneur to entrepreneur advice. First I'm going to just challenge if there's anything else you can do before you make these layoffs. I'm also going to give you some alternatives to the layoff or layoffs you need to make and then ultimately I'm going to Deliver what I believe is the best way to deliver this news. This is an important topic. We got a lot to cover, so let's get into it. Let's get down to business.

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So Will asks, how can I deliver my news to my team members that I need to lay them off? Well, before we get into that, I want you to explore a couple options if you haven't already. And this is maybe some advice for those who are listening as well, if you're in the same position as much as possible. I try to make sure that whatever I do in my business that the lives of my team members is not affected. You know, that their time, their money, that's all smooth sailing. So my first piece of advice is take a look at every other expense other than your payroll and take a look at what you can cut, what you can negotiate, what you can reduce. What are some things you can kind of reduce, maybe don't use as much. Take a break from look at your big vendors, for example, maybe your website hosting provider, Amazon services, things like that, that cost in the hundreds and the thousands of dollars. Reach out to them and say, hey, is there any way you can give me some credits, some red, a payment plan if you owe them money? There's a lot of ways you can negotiate. Negotiation is a key factor when it comes to lowering your expenses. You have to do it. And you'll be surprised how many companies are happy to do this to keep you as a customer. If you have a track record with a lot of these vendors, they're going to be happy to kind of work something out to keep you on, to keep you paying. I just recently did this with our own Amazon bill because we had a huge influx and we had a huge bill that we didn't expect. And instead of affecting our cash flow, I decided, hey, I'm going to reach out to Amazon, say, hey, we've been a customer of yours for over 10 years. Can we work out a payment plan for this rather Large bill. That is unusual, right? It's like three times as big as our normal monthly bill. We want to continue to work with you. And they were more than accommodating to do that, to make sure cash flow wasn't affected, try to attack or try to negotiate the different areas outside of payroll. Before you go into that, before you start laying people off. A level beyond that is, let's say, for example, you have 10 employees, and you need to lay off three employees to free up some cash. For the sake of argument, let's say on average, everybody's salary is kind of close. That means 30% of your payroll needs to be reduced. If those three employees that you're laying off will help you bring in more customers, will help your business thrive in the future, will help you continue to compete, you may want to consider asking the whole team to take a pay cut, a temporary pay cut. For the next three months, their salary is reduced by 30%. Sometimes it's best that you keep the team together, and we'll talk more about this later. But being frank, being honest, being straightforward with your employees is one of the best things you can do. Don't shoulder the burden alone. Let them know, hey, we've had a rough year. It's been tough. I don't want to lay anybody off. And instead of laying anybody off, what we're going to do is we're going to do a pay cut of 30% across, across the board. And you can include your own salary if you'd like to save some money for the next three months. And then after that, when we get back on track, everybody's salary will resume without the cut. This is an option. Now, a lot of people shy away from this option because they feel like, well, then I'm affecting, you know, 10 people rather than just affecting three people. But believe it or not, when you let somebody go because of a layoff, that affects the whole team. People see that and they kind of see the writing on the wall. They kind of see like, well, is this company going to go down? Should I look for another job? Now, of course, if a pay cut is announced, that vibe is going on as well. But it's not as bad as losing their whole job, right? Somebody losing their whole job. You know, 70% of a salary is better than 0% of the salary. On top of that, you know, if you have that talk with them, open and honest, hey, I'm doing this to keep everybody on because I believe we can break through this and we can survive. You're getting buy in by the team, you're saying, hey, let's do this together. And then when you have the ups in your business, you can reward them later with a retreat or a bonus or a virtual party or whatever it is. The point here is that you're in it as a team, thick and thin. And if you frame it that way, it might be better for the whole team to stick together and take a 30% cut. This is actually quite common in Silicon Valley, very common in big businesses where they just slash salaries across the board to make it fair. And most people, as bad as that may sound to you, it's actually a good thing for them because they feel they have consistency, they keep their job, it's fair and it's temporary. Okay? It's not something that's going to last forever. And you can tell them if things change, I will let you know. Now, if you decide not to go down that route and you decide to do these layoffs, sometimes, if most people like to lay off full positions because those positions are actually quite expensive, I say like to lay off. No one likes layoffs, but they prefer to go down that route because these are expensive hires. And just three hires in Will's case, it might make a huge difference. It may not be 30% of the payroll, it might be 50 or 60% of the payroll. Let's say you are making these layoffs and you are laying off three people on your team. This is what I recommend. I recommend you have a one on one with each person and you just do it back to back. Three one on ones, back to back in this one on one, one. You don't need to prance around it, just be straightforward. Just say straight up, hey, we've had a tough year. I've really tried as much as possible to move the finances around as much as we can. But unfortunately we're not able to continue to have you on the team because of finances. We're going to have to let you go as a layoff. Now all you need to do once you deliver the news is to tell them what it means to them. Hey, you're a great performer. We love having you on the team. If we ever need or can hire you back, we will. We're hoping this is temporary. If you have something that you're going to compensate them with, if they're a contractor and there is no kind of leave or severance, that's totally okay as well, whatever's in their contract. But just let them know how many days left they have to work, are they going to finish out the month, just be clear about what's next for them. You can also present the offer of, hey, how about they take a leave of absence for a month or two? Maybe you just need a couple months to get back on your feet and they can come back to you and be a salaried employee again. Sometimes people are okay with that. They want to try something out, they want to take a leave of absence, they want to take an extended break. That works for them. But just tell them straight up what's happening, what it means to them, what's going to happen next, how much time they have, when they're going to leave, what's their last day. This shouldn't be a long call, but you should leave some time at the end to see if they have any questions. If you have any questions, let me know. Whether it's right now on the call or later on to email me or to message me. Make sure they know they can reach you if they have any questions. After you do your one on ones, it's important for you to address what happened with the whole team. So with a team, stand up with a team meeting and don't let too much time pass. I would say no longer than a few days. After a few days, you should have a meeting. If you can have it sooner than that, have a meeting with the whole team. Explain, hey, we're going to lose three people. This is why this happened. This is why we made this decision. This is their last day. If you want to say your goodbyes or pass on contact information, we're hoping we can hire them back in the future. But again, full transparency. Say it like it is. It's important for you to explain what happened to the whole team so they understand what's going on, that they didn't get fired or they don't make up stories in their own chatter. People will respect you for it. And in my own experience, it allows people to feel a little bit more confident about their own job because they know the circumstances of what happened. This is not an easy exercise. This is not an easy situation, but business is not easy. That's just the honest truth. If you are a listener to this podcast, you know that I don't sugarcoat things and I say things as they are, right? I present them as they should be, which is the truth. You know, if business was easy, everybody would do it. Everybody would be a successful entrepreneur. But it's not. It forces you to grow and to do difficult things. And this is one of those things. This is just a temporary uncomfortable moment in your entrepreneurial career.

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Q and A Wednesday's question from Will. Layoffs are never easy, but having things transparent and in the open for the full company to see is very important to earn trust. Because when, when these things happen, it creates a sense of uncomfortableness in your company. You want to regain and build trust with your team by just being honest. In my experience, most people appreciate the opportunity that they had. You gave them a chance. You employed them. They learned things, they had experiences. Your relationship may be over right now or maybe taking a break right now because they might come back later. But you did everything you can. At the end of the day, you need to do what's best for the business and most people understand that, especially if you're a small business. They can see that. Thanks so much for listening to the $100 MBA show and thanks Will for asking this great question on today's Q and A Wednesday. If you have a question you want to ask, I'll answer it right here on Q and A Wednesday. Go ahead and email me@omar mba.net and I got you covered. Before I go, I want to leave you with this. This is why I always say we need to be very careful when we hire. We only hire when we're in a place where we really, really can afford the payroll, where we have at least six months of that payroll in the bank as surplus. Now I'm not saying Will didn't have that because things can change quickly in business, but it makes it even harder for you to hang on to your employees like Will did for as long as possible. If you don't have that Runway, if you're stretching yourself beyond your means, if you're just burning at the same rate, you're growing. Thanks so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care. Of foreign.

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