Last Updated Jul 27, 2010 1:30 PM EDT
By Craig Johnson, Co-owner of Matchstic, Atlanta
My business partner and I knew the company was in trouble. We didn't really talk about it-we both just knew: We saw a sharp drop in business, and we began to run in the red. For a company that had been profitable from the start, and that had seen annual revenue growth of 40 percent since its inception, this was new territory.
The situation would lead us to take painful steps; we'd have to lay off almost half of our modest workforce so the company could survive. But it would also force me and my partner, Blake Howard, to re-commit our company's focus to its core mission. And it would bring our remaining employees closer as we moved past the difficulties.
Blake and I had built Matchstic, a design house, into a high-end brand-identity firm. We landed a big project that would take us six to eight months to complete. We needed extra help, so we hired two new employees, bringing us to a staff of eight. But by late 2008, the economy started tanking and we saw a drop in new business.
It became obvious to our staff that things weren't going well. It's one thing for finances to be bad, but for everybody to remain busy. It's another thing when finances are bad and there's nothing for them to do.
What does that do to the culture, when employees can see the writing on the wall? They start responding in fear. You don't want people doing their job with fear hovering over them. You want them doing their job with excitement about building a business.
Several options, but only one choice
I knew that one big project could carry us for a while. But when it ended we'd need to replace it with another big project. Or we could accept smaller design jobs like creating brochures or fliers for companies.
But we had spent years building up our reputation as a high-end brand-identity firm. We had to stay focused on our vision for the company. We needed to make decisions based on that vision, not on how hard it would be to fire someone.
On a Friday, I decided that we had to act. Blake was away on a business trip. He flew back in Saturday morning, and we talked that weekend. On the following Monday, we laid off three of our eight employees, including the first employee we had hired.
We wanted to do it quick and deep. I had worked for a company that had gone from eight employees to 20 to six, all in one year. I didn't want to do that at Matchstic. I didn't want our top performers sitting around wondering when it would be their turn to go. That's when employees start reconsidering their position with you; start thinking about other opportunities.
Have a plan before you make the cuts
How did I prepare for this? I had a few things going for me. I'm part of the Atlanta chapter of Entrepreneurs' Organization. A few months earlier, we had a daylong session on how to hire and fire employees. We got advice to fire on a Monday, so employees feel they can start looking for work the next day, instead of a Friday, where they have the weekend to dwell on the bad news. We went over various severance agreements.
Blake and I decided to make the layoffs sooner, rather than later. We could afford to give our workers better severance agreements if we acted quickly. And we committed to helping them. We wrote recommendation letters for all three of them. Within a week, one had a job at a client of ours. Another started doing freelance work, and we began feeding him jobs that weren't right for us.
Another thing that helped me was my network of friends: fellow entrepreneurs whom I could talk with. I had their support; they affirmed that what I was doing made good business sense. And I had my faith. I do believe God has a plan for everybody's life. It was hard to believe that His plan meant for these employees to get laid off. But if I believe what I believe, I have to hold onto that.
The move was hard on our company. We went through a grieving process for a couple of weeks. Fortunately, we take company retreats twice a year, and one fell about three weeks after the layoffs. Everyone came together, talked about how hard it was and agreed that we were ready to put this behind us and keep going.
One big lesson I think others can take away from our experience is that you want to have a firm foundation; a solid understanding of your company's mission. When you're in the midst of making a tough decision, it's hard to be objective. It's easy to act out of fear, or follow the path of least resistance. When hard times hit, you can look at your mission, and make decisions that take you back to who you are-not just how you can make a little more money.
Matchstic co-owner Craig Johnson wanted to be a rock star when he was younger. He earned a degree in music-business management and managed rock bands, including the group Sister Hazel, for five years before founding Matchstic.
-As told to Matt Wickenheiser