CHAPTER TWENTY-FOUR

MANAGING IN TOUGH TIMES

If you lead your company long enough, you will lead it through some difficult stretches. Sometimes, they will be caused by a downturn in the economy. Other times, they will be caused by the business itself—either as a result of competitors, industry context, or execution. Managing in tough times is much harder than managing in good times. It’s also more important not just for getting through the tough time but for reshaping the company for the future.

MANAGING IN AN ECONOMIC DOWNTURN

One of the benefits of running a company for more than a decade is that you start seeing some of the same macro trends more than once. For me, that means having lived and led through both the 2000 recession and the 2008 meltdown. The two recessions hit the Internet economy quite differently. The first one was devastating for Internet companies, since the Internet wasn’t mature yet as either an advertising or commerce vehicle and much of the money fueling the growth of the sector was stock market money in a bubble. The second was, in some ways, productive for Internet companies, as the more mature sector was able to steal dollars from traditional sectors in the name of efficiency.

That said, leading and managing through both downturns was quite challenging and revealing. Your people are nervous. They’re concerned about their bank accounts and their jobs. As CEO, you have to be even more present, more transparent and more communicative than usual. You have to set the right tone on expenses with your own decisions. The troops need to know that you care about them and that you have a steady hand on the wheel.

Some of the things I have learned about managing in a downturn are timeless.

Hope Is Not a Strategy—But It’s Not a Bad Tactic

Your business is not immune to economic downturns. It will do what everyone else’s will: struggle to hit its numbers, struggle to collect bills, lose customers. There is no reason to hope you will be different. If in fact your business is the one in a million that is immune—or, better, countercyclical—you will know it and can act accordingly. It’s better to hunker down and prepare for the worst, even as you hope for the best. Assume that there will be a long road to recovery. Rarely is there a strong “V-shaped” bounce back from a true downturn. Plan for a long (four to eight quarter) time to return to normalcy.

If you have a real business, you need to be it for the long haul. Keep pursuing opportunities. Keep investing in the future. Don’t pare back your vision and ambitions. Just make more conservative investments, insist on shorter payback windows, and adjust expectations about time frames.

Remember, as difficult as it is to ratchet down, sometimes ratcheting back up is even harder and you don't want to put yourself in a position where critical functions need to be rebuilt from scratch when things get better. Starving HR, for example, only means that when it’s time to hire again, no one is there to do that work. Starving IT just means that nothing works—when you’re ready to hire again, your employees have solved 5 problems in 50 different ways that need to be corralled. Starving training and development means that your individual contributors will feel like their years of hard work aren’t appreciated when you have to bring in a new layer of management because they haven’t had the feedback and coaching to get that promoted themselves.

You have to get your company through the downturn but you also have to keep your eye on the future. Hope may not be a strategy but it can be a useful background tactic.

Look for Nickels and Dimes under the Sofa

In the fall of 2008, we were on a crusade against extraneous expenses. We kept hacking away at the bigger and more obvious items. Fewer consultants. Turn that offsite meeting into an onsite meeting. Reduce the number of new hires. Then we realized that we needed a new target on our income statement to reduce expenses further: the line item known as “Other G&A” (i.e., “General and Administrative Expenses”), which different companies call things such as “General Office,” or simply “Other.” It’s a relatively inconspicuous line on the income statement but it’s inherently problematic not because it encompasses a huge amount of expenses but rather because it inherently doesn’t have an owner and rarely has a budget.

As we dug into the gory details of “Other G&A,” our team came to a realization: it’s not that we buy too many pens, per se. It’s that the absence of someone being in charge of that line item means that no one manages it to a budget—or even just manages it to some kind of reasonability test.

Little things add up to big things in the end. Whether it’s duplication of expenses, too much FedEx, forgotten recurring items, or the storage locker that we forgot about years ago, you will spot little ways to save money left and right. Sneak those items into “Other G&A,” and nobody will take responsibility for managing them responsibly.

Making Tough Financial Decisions

It’s almost inevitable that during your tenure as CEO, you will have to make some tough calls to reduce expenses—the toughest of all, of course, being the need to lay off some of your staff. These decisions suck and it’s easy to view them through the lens of math: pick the biggest areas of cost savings, implement them, and don’t worry about the little things. That’s a mistake. Sometimes it’s the smaller things that attract attention and breed cynicism when left in place.

Even if you’re not an extravagant company, there is almost always room to save. When your priorities in a downturn become protecting everyone’s job, everyone’s salary, and health benefits, you start realizing that extraneous items don’t always count for a lot. Sending 5 people to a big trade show can have a comparable impact to sending 10. You don’t have to be the vendor who picks up the tab at the end of the night. You don’t need to pay for half the company to have cell phones to retain top talent.

When the economic downturn hit in late 2008, we scrambled to reduce our expenses in every way possible besides cutting heads so that we (hopefully) wouldn’t have to do layoffs. One of the things we cut was Pilates class in our Colorado office, an expense that couldn’t have cost more than $2,000/year. Practically speaking, it didn’t make a difference to our budget one way or another. Even for a company obsessed with its employees and their wellbeing, this felt like something that had to go in an era where we’re cutting back. (Picture your employees rolling their eyes at a sushi buffet lunch, saying, “We should have given this up so Sally could have kept her job.”) Your symbolic action here tells the rest of your employee population that it’s time to buckle down and fly straight. They will.

Never Waste a Good Crisis

As Barack Obama’s first chief of staff, Rahm Emanuel, said when Obama took office in 2009, right after the financial meltdown started, you should “never waste a good crisis.” If you can lead your organization to get more done with less when times are tough, that means you have improved the collective ability of your organization to prioritize, execute, win, and beat the odds. Your job as a leader is to figure out how to make those things stick when times get better.

Holding your organization’s collective nerve in a crisis can change a lot of things about your organization for the better and there’s no need to reverse course on those things just because we can. Here’s one example, one of many we had from the 2008–2009 period: When we cut our travel budget by 50 percent, everyone on the team looked at us like we were crazy and said there was no way we’d be able to make budget. Guess what? We beat the slashed budget by almost a third, without complaint! Why should we triple it going forward to get back to where we were?

ARTICULATE THE PROBLEM

I have always thought that the ability to stare down adversity in business is a critical part of being a mature professional.

How you manage the emotions of your organization when times are tough is key. Just as leadership counts extra in an economic downturn when people are afraid for their jobs, leadership counts extra when your business faces its own challenges. People may not be scared or insecure but they are suddenly aware that there is more scrutiny on their performance. When things are going well, everyone benefits and it’s easy to overlook problem areas in the business. When things aren’t going well, everyone is in a bad mood and it’s easy to blame everyone and everything.

A while back, we were having some specific challenges in the business that were really hard to diagnose. It was like peeling the proverbial onion: every time we thought we had the answer to what was going on, we realized all we had was another symptom, not a root cause. We’re a pretty analytical bunch, so we kept looking for more and more data to give us answers. We kept coming up with, well, not all that much—besides a lot of handwringing.

It wasn’t until I went into a bit of a cave (i.e., took half a day’s quiet time to myself) and started writing things down for myself that I started to get some clarity around the problem and potential solutions. I literally opened up my computer and started writing—and writing and writing. At first, the thoughts were random. Then they started taking on some organization. Eventually, I moved from descriptions of the problem to patterns, to reasons, to thoughts about solutions.

What really put me on a track to solutions (as opposed to just understanding the problem better) was starting to talk through the problems and potential solutions. It didn’t take more than a couple of conversations with trusted colleagues/advisers before I realized how dumb half of my thoughts were, both about the problems and the solutions, which helped narrow down and consolidate my options considerably.

Even better than solving the problems, or at least a driver of being able to solve them, is feeling more in control of a tough situation. That’s probably the best thing I have learned over the years about the value of articulating problems and solutions. For a leader, there is no worse feeling than being out of control—and no better feeling than the opposite. Some level of control or confidence is required to get through tough times.

I suppose this concept is not all that different from any 12-step program. First, admit you have a problem. Then you can go on to solve it. The point I am trying to make is more than that: it’s not just admitting you have a problem. It’s actually diving in deep to the potential causes of the problem and writing them down and, better yet, speaking them out loud a few times. That puts you on the road to solving those problems.

That’s the best way to lead the organization out of the rough patch. Once your business gets big enough, you have to realize that you’re not alone in having highs and lows any more. While it’s nice to have company in that, whiplash can be destructive to a broader team, so you have to manage it carefully when it happens to others. Identify the problem clearly, isolate its drivers and restructure yourself for success in the future, whether that means changing people, structure, or strategy.

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Management Moment

Delegate Decisions to Domain Experts

Companies succeed when the decision makers understand the substance of the issue and when those same people make decisions, plan for execution, execute, and follow up. If you’re not the best person to make a particular decision in your organization, either because you aren’t close enough to the issue or aren’t going to be involved in its ultimate execution, then don’t make the decision. Delegate that decision to someone else. You don’t have to look too far to see a lot of examples of how the absence of domain expertise, has led to spectacular failures, from Enron to Wall Street’s meltdown. With a little humility, these are avoidable errors. Identify your experts and delegate relevant decisions to them.

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