When you need to cut the numbers: tackling the topic of restructuring, redundancy and downsizing

 In General

In 2007 as a teenager I watched my stony-faced father come to the painful realisation that many business owners will face at least once on the path of entrepreneurship – the need to let people go. The topic of redundancies, restructuring and team cuts seems to be a topical one as Fonterra grapple with the effect of the dairy price drop, but it’s not just big corporates that will, just like my father did – need to call someone in to let them know they are not needed anymore.

However, unlike bigger businesses – startups tend to be a bit more of a personal affair, often small teams pulling crazy hours alongside founders, this can make downsizing trickier and more emotional.

A question of model
Whilst established businesses can more easily project both product and team growth, it can be a trickier art to master for a startup. From pre-startup to investment, team structure will be founder-heavy, and as client needs or product offerings grow, the need to build a team to wrangle and ship is essential. However it is here you might want to consider your structure – do you need to take on permanent staff right now?

Our business can be spiky and, as bad luck would have it, two of our biggest clients had a change in their business that reduced the need for our support. We had to cut our cost structure fast and deep to get it in line with the new forecasted revenue base

— Karl Stark & Bill Stewart, Avondale via Inc.com

Taking advice from old adages seems like a sentimental thing to do, but with the old ‘an ounce of prevention beats a pound of cure’ it could prevent painful, emotional and hard to brace things later on. Whilst the benefits of hiring permanent staff are plentiful (team culture, solidity, staff more prepared to do the hard yards for you as they are ‘part’ of the project), if you are starting out in your first year invested, your growth is spiky or you have a service based startup, consider working with freelancers and contractors as the first port of call.

Abroad startup culture has been attacked for hiring and firing fast and the act of shedding and restructuring at will. Along with the element of it all feeling a bit icky, most of the criticism comes down to three things. The first being hiring permanents when contractors were probably needed, the second being vanity growth based on the perception of the number of people in a team directly being linked to business strength. The last and possibly most insidious being an influx of bad hires during high growth  that lead to massive staff churn or culture imbalance which inevitably leads to a massive restructure either by design, or by people leaving. Although the above are symptomatic of businesses moving with agility, they don’t need to be, and that is where we as individual business owners can help craft a better approach to both building teams but maintaining them.

We’ve gotten into this world of ‘fail fast.’ But I think when it comes to hiring it’s a little different. People’s lives are at stake

— John Greathouse, Rincon Venture Partners, via the Wall Street Journal.

Being mindful of the ebb and flow of your model, the makeup of your team, and the importance of team culture can help prevent the need to restructure in some cases.

OK I hear you, but we actually need to restructure – what now?
First off, educate yourself on your legal responsibilities, thankfully for us here in New Zealand MBIE makes this pretty easy for you. As a starting point check out this page on their website, and also familiarise yourself with the support that Work and Income New Zealand can give both yourself and your staff. You may also want to point affected staff in the direction of help and support from IRD, let them know that services like Citizens Advice Bureau can help them with advocacy, or even let them have a degree of power to decide how the rest of the team may find out about their redundancy. Do they want you to tell them, or would they prefer to do that one on one?

Whilst most startups won’t have a dedicated HR resource, when it comes to a restructure you may want to enlist one. Not only will they help hone a plan, they will clarify your legal position and your responsibilities as an employer.  We asked Antonia from Blue Dot HR to share three things startups should consider when restructuring.

1. Emotion trumps logic
Neuroscience tells us that although decisions may well be rationalised afterwards by using logic, a decision itself is made on emotion (logic plays only a secondary role). This is because the emotional part of our brain processes information faster than the logical part. Bear this in mind when you’re restructuring: before you launch into the logical rationale behind the changes, be sure to appeal to people’s emotional brains first by creating visual images of the future. Answer the “how does this impact me?” question that will be on everyone’s mind. Use the consultation period to really understand how people are feeling and give them the information or support that they need.    

2. Know why
The clearer you are about the business rationale behind the changes you want to make the better. Knowing (and being able to communicate) the need for change will help your team to share your vision for the future and get on board to make it happen. If your restructuring has the potential to result in redundancy for anyone in the team this is even more important – not only for the person directly impacted but also the people that work with them. It will also protect you in the event of a personal grievance which can be lost on substance just as much as process.

3. What Next?
It is estimated that over 70% of change projects fail. This is often because so much effort and attention is put into planning and executing a restructuring, and very little into embedding the new structure. Think about how to integrate all the aspects of your workplace culture (employee behaviors, attitudes, capabilities, and commitment) to making the change a success.

Anya is the Brand & Communications lass for GridAKL, and she is keen to find ways to help businesses both within GridAKL and in the wider eco-system. Do you have something you would like Anya to write about? Get in touch with her on twitter

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