In this session, we explore what to do when the rosy forecast does not materialize, and you need to restructure your firm. This includes how to determine who to layoff, when to lay them off, how to do so in the proper way, how to support the now former employees during the transition and how to preserve the culture and keep morale up with the remaining employees.

TRANSCRIPT

Greg Alexander:

Hey, everybody. This is Greg Alexander, founder of Collective 54 and welcome to the Pro Podcast. This is a show dedicated to helping founders of boutique professional services firms make more money, make scaling easier, making an exit achievable, etc. etc. And today, we have a very interesting topic and the topic is restructuring and layoffs. It’s kind of a bummer to have to talk about this topic, but it is coming up. You know, we’re recording this in June of 2024, we’re about halfway through the year and we have some members of Collective 54 whose rosy forecast to kick the year off with didn’t materialize and they’re gonna have to figure out how to cut some expenses. In the services business, that means trimming some heads. So we have two experts, restructuring experts with us today, two members of Collective 54, Ken Yager and Tim Stone of Newport Advisors. So first, when I send it over to you guys and Ken, I’ll start with you. Can you give a brief introduction of yourself and the firm, and then I’ll jump into some questions.

Ken Yager:

Fantastic. All right. Yes, I’m Ken Yager, founder and president of Newpoint Advisors Corporation. We’re around 11 years. We’ve got 30 professionals all over the United States helping smaller companies with distress caught five to 50,000,000 dollars in revenue. Is the typical client base. I’ve been at this for 35 years, worked with companies of all different sizes and now work with just dedicating ourselves to focusing on being a service company for the small and distressed. I will add one caveat. One thing too. We talked about the bummer, right? So everybody wants a growth coach, and this is why I’m in Collective 54 because Greg Alexander, you are an amazing growth coach.

Greg Alexander:

Sure.

Ken Yager:

But, you know, what people don’t know, they also need is a down cycle coach. And that’s why we’re here.

Greg Alexander:

Sure. Yeah, exactly. Well, we’re glad you’re here because this has gotta be done correctly. Yeah, Tim, why don’t you tell the audience a little bit about yourself?

Tim Stone:

Thank you, Greg. Tim Stone, Newpoint Advisors Corporation. I’ve been at Newpoint for 11 years. My background primarily focuses in the financial area of companies helping them to decide really if they are going to downsize what’s the benefits of downsizing in specific areas. So, glad to be on this topic today. Thank you.

Greg Alexander:

Very good. So, guys, I’ve got four questions that I’ve prepared and I’m just going to jump into those. And, and to keep this orchestrated correctly, Ken, I guess I’ll let you quarterback, I’ll send them to you. And then when you think Tim has some things to add, I’ll let you direct us in that way. Yeah. So question number one. So what are the key factors to consider when deciding which employees to lay off during a restructure?

Ken Yager:

All right, fantastic. Well, we’re getting to the easy ones first: cash. Do I have the cash to pay this payroll? And that’s the easy short-term answer, right? That’s what I’m looking at tomorrow and trying to say, I’m gonna make payroll. But then we’ve got another issue which is the time and forecast. I’ve got, you know, if you’ve missed your forecast for this year, you should be re-forecasting. And also I want to talk about a tool that everyone needs to own. It’s the golden tool, the quiet tool owned by private equity and venture capital. It’s called a weekly cash flow forecast model. They don’t teach it in business schools. You’re not gonna find any academic books on it. You can google it and you, if you’re finding yourself in this moment but you need or your CFO needs to be putting together a 13-week cash model and you need to be looking at a conservative model that looks over the horizon. 13 weeks is by, you know, three months out that’s a very good place where you should be able to understand your world. You can extend it. They just, everyone starts at a, that’s the minimum and you should be able to look over that horizon and determine whether your cash is coming back into play or if it is going to continue to sink or disappear on you. This then starts to set the scenario about how deep and wide the cuts need to happen before we start to get to the questions about functionality?

Greg Alexander:

Can I just ask a follow-up question? I’m already breaking my own rules here. But what I hear from members, I, so first off, I don’t think a lot of them have a 13-week cash flow model. So that’s a great piece of advice, right? And small business owners tend to be a little less sophisticated when it comes to financial management. So that’s a great lead. What I hear sometimes though is listen, business is soft, the forecast didn’t materialize however, you know, growth is right around the corner and I can’t let go of Bob because Bob is a key person. And when I get that one deal, I’m gonna need Bob. And if I let Bob go now, it’s really hard to find another Bob. So I’m gonna hold on to him. This, this happens all the time. Meanwhile, they’re bleeding cash left and right? And, you know, how long did they hang in there for?

Ken Yager:

Not well, okay, great. That great question. You, how long do you want to hang in there for? Because Bob and you may be separated by your cash flow at some point in the very near future, you got to decide, you got to you’ve, got to get right into your soul and decide how much do I really believe that this is going to change? And it was so many of our members deal with fortune 500 companies and big departments and they don’t see you, you’re invisible. I don’t care how good your relationship is with, your contact, if he started to cycle back and pull back on their budgets, these are long tail events. You need to be digging in other places. So if you’re dealing with that and the whole thing that Bob is helpful for is when that comes back, I’m gonna tell you the first order of business is you may need to consider that Bob may not be the utility player that you need. If all you’re doing is holding on to him for the dream while other people are doing work that is cash flowing for your business. So sometimes a little bit of the here and now so that we can live to fight another day.

Greg Alexander:

Yeah. Now, now, Tim, you described yourself as, you know, the financial expert and I want to bring you in here because guys like you usually cut through the emotion and get to the issue. So I just teed up an example of this fictitious guy called Bob. So what comments do you have around this?

Tim Stone:

I’ll kind of echo a little bit what Ken said from a Bob scenario. You almost look at it. If you’re just holding on to Bob just to provide a specific service that potentially could be provided by someone else, I would say it’s better to move on from Bob for the moment and conserve the cash, and really apply them in different areas of your business to help sustain and get over this down cycle.

Greg Alexander:

Yeah. So I agree with you guys. The goofy metaphor I’m gonna share with the audience is imagine you’re in an airplane and the thing nose dives and you’re headed towards a crash and out pops the oxygen mask. What do they tell you? Put your mask on first?

Ken Yager:

Yes.

Greg Alexander:

Before you put somebody else’s mask on. So in this case, when it comes to Bob, Bob goes before you do. So, let’s be sure that we thank Bob for his time and we move on and we move to the next crisis.

Ken Yager:

And I’ll add another point to that. I love the analogy of Bob. So Bob is actually bobbing up and down in your cash flow, right? Bob does have a full-time purpose. Let’s move Bob on to somewhere else. He looks like a fractional partnership that you might want to consider at this moment and not necessarily the dead weight that he is in the current scenario.

Greg Alexander:

All right. So our little Bob bobbing up and down leads me to my second question and it’s a good lead because it’s related. So the question is how can we ensure transparency and clear communication with employees throughout the layoff process? And just a little color on that back to Bob. Our members are nervous about letting Bob go because they think it’s going to crush the culture. So they’re worried about the people that are left behind, which is admirable to be worried about. But, you know, how do we deal with that?

Ken Yager:

All right. So one thing we do is we don’t let this wound linger. Waiting for Bob to go and watching other crises start to bubble up around you. Instead of being one problem, if you don’t take care of the one problem, it’s like an infection in the body. It will grow and systemically move. That’s gonna eat culture up faster than letting go of Bob.

Greg Alexander:

Good point.

Ken Yager:

The other thing I would say is the timing of communication. I imagine it’s funny and collective. I think of the little group of like five or six people holding themselves together. We’re an organization, the 25-50 member company. And then you’ve got the 100-member person, the little band around the fire. You just get together and we’re just gonna keep muscling forward. It’s okay. We had to let Bob go, but the rest of us here are good. For 25-50 people, we organize a conversation with the team, but you can’t talk to every single person. So that might be layers of conversations where you’re communicating through the bosses. You don’t break up what you already created as an infrastructure. And then the larger groups, we’re getting into an HR story that we can pick for another time.

Greg Alexander:

Okay… Tim, anything to add to that or do you think we captured it there?

Tim Stone:

I think that really in essence captures how you would, the total transparency of communicating why you’re having to kind of downsize in this particular individual is by, for instance, is having to go because it’s for the better good of everyone involved with a company.

Greg Alexander:

Yeah, yeah, very good point. You know, I’ve been through this a few times, 2024 represents my thirtieth anniversary in my career. And I’ve been through four major crises and several minor ones. But the major ones were the dot com blew up and I was in a tech company and that was tragic in many fronts and we laid off a lot of people. Then we had 911, which changed the entire society. That was a nightmare. Then we had the eight or nine financial crisis where we all thought we were going bankrupt. Of course, we just made it through COVID, right? So these were four major disruptions. And you know, when you’re an old guy like me and you remember those four things. Surprisingly, it fills you with optimism because you can say those are four really bad moments. But here we are, we’re still fighting, right? The sun is still coming up so we can make it through it. But when you’re in the middle of it going through it, it’s like my gosh. Am I never gonna get through this? So keep in mind that, it stinks to lose Bob. But if you lose Bob and you save 10 jobs in the process, you’re actually doing everybody else a service.

Ken Yager:

Good. Yes. And if you do it right, Bob doesn’t burn a bridge and Bob becomes a partner or helpful in some other way in the future. Remember the network of people you live with. I tell people, you don’t live in a territory, you live in a tribe, take care of the people around you. Make sure Bob lands softly and understands why it all happened. It’s not Bob’s fault. These are things that happen.

Greg Alexander:

Question, right? So, when you’re laying people off and you wanna do it as smoothly as possible with as little disruption as possible. Are there any kind of rules of thumb to follow?

Ken Yager:

We always let the people who can be terminated leave the building first. And then you have your communications with the survivors and that happens in the same day or the same hour. Termination conversations should be short. Do not try to sit there and pat someone on the back and tell them what a great person they are, you know, so sorry about this stuff. That’s the kind of stuff, believe it or not, that unfortunately in that moment of emotions leads to a lawsuit. It’s just, it’s unfortunate. Those meetings, if you had a termination meeting with someone that lasts more than five minutes, you should be watching yourself. What’s coming out of your mouth can get you into a lot of trouble. It’s unfortunate, but that’s kind of the rules, that’s the way society operates. But you can choose those five minutes to do a really good job. So be mindful and intentional.

Greg Alexander:

What do you do in a virtual setting? Most of our members don’t have offices anymore and everybody’s on Zoom like we are today. So you can’t get someone to leave the building first. How does it change in a virtual setting?

Ken Yager:

Yes. So in a virtual world, we worry a little bit more about technology and who has access to what. So one of the things is making sure that someone is sitting there with their finger on the trigger, making sure that Bob can’t go and do something horrible to the business right after he gets taken into an emotional tailspin. Otherwise, the communication goes look. I would offer up a great example, a great story of what not to do. You fly to Bob’s town and you go to take him to lunch to let him go. Don’t do it. It’s the bad signal and the most painful meal you ever had in your entire life. I did it once and I know another person who did it and that’s about it. That’s how many times you’ll do it before you realize it’s a terrible idea. The remote is okay. I love the picture of the Zoom, you know, our teams, you can emote just enough empathy and move things forward. But you have the technology at your back because you don’t want someone tearing your business up either.

Tim Stone:

And I would add also, it helps to have basically an exit checklist of the things that need to be done prior to informing HR, informing managers that this person is gonna be leaving on this date, so that when it happens, they’re not surprised. And then when you also have this quick conversation, it’s like have your agenda of here’s what you’re gonna say. And here’s the paperwork. If you’re going to provide them with any covered severance packages or whatever, have that stuff available and ready to go.

Greg Alexander:

Yeah. Okay. Well, listen, we’re at our window here, we try to keep the podcast to 15 minutes. We’ve learned that that’s the attention span of podcasters. Of course, this will be followed up with our one-hour private member Q&A session where our members will be able to ask questions directly of you. But guys, thanks for being here today, and handling this tough subject. But it’s comforting to know that there’s people like you in the world. Not just growth coaches but downturn coaches as we started off with. So thanks for being here today.

Ken Yager:

Absolutely. Thank you, Greg.

Greg Alexander:

All right. So, audience members, I’m gonna leave you with some calls to action. If you’re a member and you think you might be going through this and you want some expert help, look out for the invitation that you’ll get to Ken and Tim’s Q&A session. If you’re not a member and you want to become one, go to collective54.com, fill out an app and somebody will get in contact with you. And if you’re not ready for either of those things, you just want to consume some more content, I push you to my book, it’s called “The Boutique: How to Start, Scale, and Sell a Professional Services Firm” written by yours truly. You can find it on amazon.com. But until next time, I appreciate your attention and I wish you the best of luck as you try to grow, scale, and someday exit your pro service firm.

Note: This transcript was generated by Gong.