Have you been affected by the wave of layoffs in the past year? Are you a company that had to lay off a certain percentage of people recently? If the answer is “YES” to either of these questions, I am interested in how you are doing.
We are all (most of us) aware of what has been happening in the IT industry over the past few months, both globally and locally.
Marko Mudrinić has made sure that, even if you didn’t know, you certainly know now. First with an article about layoffs and then about workers’ rights in case of termination. There’s also the Reddit post with “direct” reports from companies by people who are now former employees.
From the employee’s perspective, I would say the situation is pretty clear and simple – what happened happened, we rolled up our sleeves and started digging through job ads to find a new employer.
It is clear and simple from the perspective – if I did a good job, I know I am valuable and contributing, then I have (not so much) reason to worry, sooner or later I will find another job.
If, however, I am someone who spent more time at work with Sony, billiards, table tennis, and other antics, then yes, I have reason to worry, but that’s another pair of shoes I wouldn’t like to open today.
What interests me more is what the situation looks like from the employer’s perspective. I would say it is far more complex. Not only because it is difficult to terminate someone, not because it jeopardizes both reputation and the employer’s peace of mind, but how to prevent it from happening in the first place, and is it even possible?
I am sure that no reasonably serious employer is sleeping peacefully these days.
Most of the day is spent in Excel, creating different scenarios of what if everything goes south, how to react, and how to behave in the best, primarily human way in given circumstances.
Damn, that is the price every CEO or co-owner of a company pays, that is their job and they have to deal with it. That is my assumption – that it should be the daily routine of the leading people in the company.
Maybe I am wrong?
The thought came to me because as soon as a major crisis occurs, not even a few months pass, and there are already significant turbulences in companies.
This was evident when the coronavirus hit. In March and April, everything stopped, most companies did not know how to adapt to working from home, as if it was not evident that the change would happen.
And even if there was no corona, remote work would still become dominant in 2022 and 2023.
The same thing is happening now. It was evident since the middle of last year that new turbulence would come to the industry, yet again we are in a situation where companies are unprepared.
How have companies prepared for the emerging problems and those that are yet to come?
I don’t know, I can only assume, but the fact that as soon as several larger banks and companies that brought money to our country collapsed, “overnight” hundreds of people were laid off in domestic companies.
This leads me to think that companies and their leaders are running businesses poorly.
What do I mean by that and can it be done differently?
The key is in asking the question that Vuk Stanković described in his article, “How long can a company survive without income?” As leading people in your companies, do you ask such questions? What else? What other metrics do you monitor to avoid the worst-case scenario?
The most common mistakes company owners make
There are surely many, but here are a few that are repeated, I would say often – even more so in Serbia:
- Companies are run by the principle of “Serbian boss.” Here I mostly mean that the “boss” primarily looks to earn the most and take the largest cut regardless of the consequences.
- Companies (especially outsourcing ones) operate on very low margins, very often even with negative operations, all in the hope of “catching” one large client who will cover all previous costs.
- No cash reserves are made, but business is conducted from month to month.
- There is no one-year planning, everything is short-term – let’s spend everything as quickly as possible, then see how we will proceed.
- No thought is given to diversifying clients/services/businesses, but all eggs are kept in one basket.
- The existing business and way of working are not optimized, instead, new people are brought into teams, and work is done inefficiently.
- External costs are not optimized.
- Too many people are on the bench waiting for work.
- Salaries are too high and do not necessarily correspond to the level of knowledge and expertise of employees.
What can we do to prevent or mitigate instant terminations when business declines?
These tips may sound banal to some, or they might say “But you can’t make a multi-million dollar business from that,” and they would probably be right. But is that the only thing that matters?
Does the business have to be a million dollars? I would say no. I think it is much more important to be human first and foremost, and of course, for the business to be profitable!
But not to grab as much as possible without thinking about the consequences. Not to forget that in our companies work people who have families, future descendants, some with weaker or better financial pictures in the family, and that our actions as leading people in the company can significantly change many families’ lives.
These are the things I look at and discuss almost daily at Growit Agile:
- The cash flow must be positive for at least 6 months in advance. In translation, if everything stops – no new income, we are at least 6 months okay with cash reserves and agreed things we are working on. That is enough time for everyone to adapt to the new situation, and if layoffs are needed, enough time to find another job.
- In the bank, there are always one or two cash loans (which are not activated) that are there for quick coverage if something goes south, to further ensure that these 6 months are prolonged.
- We always have several financial scenarios – we call them DEFCON states. These states show us what happens to the cash flow table if primarily we are not good for 6+ months and how it reflects on the company and employees.
- We optimize the way of working and job utilization. We constantly look at how we can work better and more efficiently while keeping our utilization per employee in the range of 50-70%.
- We create deep partnerships and contracts that may be less financially profitable but bring long-term stability.
- We plan for our EBITDA to hover around 20%.
- We work with both SME and BIG segments – we do not want to focus only on one industry or just one type of client.
There is no simple solution
If it might not have been clear, I hope it is now how much more complex the situation is from the employer’s perspective.
Should the employee care? Maybe not, but it would be nice to be aware that not everything is black and white.
I also hope that after all these turbulences, employers will approach business management and financial planning differently, and will apply some of these tips.
