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Mock Crisis to Maintain a Well-Oiled Machine

startup crisis

It’s amazing how success can cause numerous blind spots for managers and executives.  The greater the success, the more severe the blind spots.  As an advisor, I sometimes poke on those blind spots only to get a reaction like “Hey, we’re doing really well, what’s the problem?”  Well, it can be a big problem for multiple reasons that can backfire on you later if you’re not careful.  This article will explain that further.

Setting the Stage

The blind spots can relate to a variety of things, including tools and processes that are currently used but won’t scale much longer (if you don’t know the difference between growth and scalability, read my article titled “Growth & Scalability Aren’t the Same Thing“).  Or maybe a new competitor that remains invisible to you for too long.  But the focus of this article relates to your employees.  More specifically, “dead weight”, under-performing employees, and the sub-optimal programs or initiatives they might be working on.

We all aspire to build a high-performance team of “A” players that work both hard and smart.  But no matter how diligent we are at interviewing prospective employees, some “B” and “C” players are certain to slip through.  This is especially the case when your company is doing really well, because you likely have an aggressive hiring plan and desperately need more bodies to keep the success going.  Aggressive hiring plans can cause hiring managers to shortcut their due diligence and/or lower their bar.

The other thing that can happen is your hard workers suddenly start working less hard.  After all, things are going really well, so why put in that extra effort or point out things that are likely to break or not continue to scale?

We often grow our business by adding new products, targeting new customer segments or expand into new geographic markets.   But as we add more and more of these things to our operations over time, we often forget to re-evaluate the previous things we were doing to make sure they are still beneficial to our future goals and vision.

Time for a Crisis!

Why on Earth would you do a layoff or severely cut your expense budget when you’re experiencing a period of solid success?  Well, in this case I propose that you don’t actually do a layoff or whack your expenses, but rather go through the exercise as a “mock crisis”.  Pretend it’s September 16, 2008 – the day after Lehman Brothers suddenly filed for bankruptcy and economic panic set in to trigger the beginning of The Great Recession.  You don’t know what the next couple of years are going to be like, but you need to be prepared to reduce your costs in case it’s necessary for survival.

March 2020 Update – Although you don’t need to go to the extreme of using a global pandemic as the backdrop scenario for the mock exercise, I’m certain that the companies that had any sort of “in case of emergency, break glass” plan were more prepared for the actions they ended up taking (or will likely soon take) in order to keep their company alive during the crisis.

I don’t think the exact type of crisis scenario to use makes a huge difference. It should be something the executive team can relate to, which means a massive asteroid surprisingly colliding into the Earth and causing the next Ice Age is certainly going too far.

Gather the executive team and start the process for a 20-25% expense reduction.  10% isn’t enough for this exercise to show its value and 35% or more isn’t really necessary to derive the benefits.  Obviously, if your team has fewer than 10 employees, this exercise isn’t nearly as practical or worthwhile.  But with 25 employees or more, you’ll be amazed at how insightful the exercise is.

Revelations

When a real crisis happens, very painful actions are taken.  Revenue-generating products are eliminated and beneficial programs and activities are reduced or eliminated.  In fact, two of the first victims in this exercise are marketing programs and travel.

The severity of the crisis dictates how high the bar needs to be in order to maintain a product line, geographic territory, program or activity.  One net result of dealing with the mock crisis is a newly-prioritized list of those things.  And even though the line got drawn according to the severity of the mock crisis, the items towards the bottom of the list are often candidates to eliminate or curtail regardless.

A crisis often means employee layoffs. And when real layoffs happen, good employees are let go.  In other words, employees that weren’t stealing from the company or otherwise doing damage.  Such employees should be fired, regardless.  During a real crisis, as you decide to eliminate product lines, geographies, programs or activities, employees at all levels of performance are affected.  You’ll surely do everything possible to save your true “A” players by redeploying them into other preserved roles, but solid “B” players will surely get affected.

Going through the mock layoff will enable your managers and executives to see these otherwise-hidden “B”, “C” and “D” players (shame on you if you’re carrying “C” or “D” players on your payroll, regardless of your success).  Your managers will be forced to stack rank their employees while assessing their expected contribution to the business for the duration of the crisis.  Somebody has to be at the bottom of the list for each function. And some functions will get affected more than others.

The greatest value of the mock crisis lies in the discussions and debates among the management team.  And the more you treat the exercise like a real crisis, the better.

I predict that you and your executive team will decide to take some actions following the mock crisis.  In fact, I guarantee you will identify some employees that you need to talk to about their poor performance.  But don’t be surprised if you also identify employees that need to be put on a performance improvement plan (PIP) and with intentions to terminate if things don’t dramatically improve.

I further predict you will identify underperforming products or programs that need significant action.  Dead branches exist on even the most lush and healthy of trees.  You must trim those dead branches to have a well-oiled startup machine.

Side Note:  I sometimes say “Desperation reveals options that were always in front of you, but weren’t visible until you became desperate”

Maintaining a Well-Oiled Machine

I recommend going through this mock crisis exercise starting when you have ~25 employees and every year or two after that.  Just incorporate it into your management system.  It sucks to build a well-oiled machine that’s generating big success only to have that start crumbling due to your inability to see through your blind spots.

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