S7 E23 – Your startup has hit the rocks – How to reduce staff cost while minimizing disruption with Jeremy Gray

“Cut smart, Cut with a plan, and Cut with help” Jason Goldberg - Fab

If the viability of your start up is in question its time to take action. Do not wait, the earlier the treatment the easier the cure Staff costs are a major cost and there is a temptation to cut drastically. Cut Fast Cut Deep is often quoted, Reflecting on the failure of his start up Fab’s Jason Goldberg regretted imposing massive layoffs in Europe and reducing the US team from four hundred to eighty five employees. He criticizes himself for being too quick to focus on slashing costs and narrowing scope versus taking a step back and devising a plan that could preserve value for the shareholders. Communicate openly with your staff about the situation Often concerns that if you tell employees that the business needs corrective action that they will leave More likely to leave if you take action without explaining why. Give them a voice. If you have hired right and focused on retention, they may be willing to accept changes in their employment Overtime: A good place to start is to look at overtime. Overtime can quickly become institutionalized. Employees can quickly get used to their overtime pay and become to rely on it. So, they slow down on the job so they can put another couple of hours on the clock before they leave. Or rather then finishing some work on a Friday they come in over the weekend to get the job done. Determine the main cause of overtime hours in your workplace and think about how you can reduce it. It could be as simple as optimizing staff schedules or reevaluating an outdated process. Alternatively, if the overtime is both necessary and temporary, consider waiting it out instead of hiring a new full-time employee. Sometimes overtime costs are temporary based on deadlines or quirks of the workflow but hiring a new staff member is a longer — and more costly — commitment. Improve Workflows Bottlenecks, disorganization, and lack of structure cause inefficiency that can waste time and money. Simply reviewing your business’s processes and workflows could save you a significant amount of money and foster more productive and effective employees. Eliminate unnecessary work. Its likely that some work is being done that does not deliver a lot of value. Free up employees to do more productive added value work. Outsource low value added but essential routine work Particularly useful in you are in high wage economy Many free lancers are available at a low cost to do this type of work Be ready to go through a number of candidates before you find a reliable quality worker Offer flexible hours, remote working, shorter working weeks Employees may be willing to trade a better work/life balance for a lower salary The improved engagement can lead to same work being done in less time. Restructuring fixed salaries sounds more ominous than it really is. Instead of simply reducing your employees’ salaries, which will cause disengagement, demotivation, and even turnover, consider offering performance bonuses and commissions instead. This ensures staff members are only paid additional amounts when your company is profitable. For example, let’s say you have a salesperson who has a base salary as well as a 5% commission on the sales they make. Ask them if they’re willing to take a lower base salary in exchange for a higher commission, like 10%. That way, you’re paying them more when they bring money into the company, instead of all the time. Alternatively, introduce performance bonuses to other full-time employees in lieu of salary increases or in exchange for a lower salary. Set goals for them to meet that are based on the profitability of their role or department, whether it’s reducing costs or increasing sales, and reward them based on whether they meet their goals. This way, you’re rewarding staff for a job well done when the company is doing well. If you must cut, Who?