Use Mock Layoffs for a Well-Oiled Machine

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 these 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.  Let’s explore 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.  Or maybe a new competitor that is invisible for too long.  But the purpose of this article relates to your employees.  More specifically, “dead weight” and under-performing employees.

We all aspire to build a team of “A” players that work both hard and smart.  But no matter how good 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 fail?

Time for a Layoff!

Why on Earth would you do a layoff when you’re experiencing a period of solid success?  Well, in this case I propose that you don’t actually do a layoff but rather go through the exercise as a “mock layoff”.  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 order to survive.

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


When real layoffs happen, good employees are let go.  In other words, employees that weren’t stealing from the company or otherwise doing damage.  Those employees should be fired, regardless.  During real layoffs, you might be forced to withdraw from a particular market segment or close down a product line.  That ends up affecting employees at all levels of performance.  You’ll surely try to save your true “A” players by redeploying them but solid “B” players will likely 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 “D” players on your payroll, regardless of your success).  Your managers will be forced to stack rank their employees while assessing their actual contribution to the business.  Somebody has to be at the bottom of each list.  Are they a “C” player?  Were they an “A” player that’s now barely a “B” player?

The value lies in the discussions and debates amongst the management team.  And the more you treat this like a real layoff exercise the better.

You might actually decide to take some actions following the mock layoff.  In fact, you almost certainly will identify some employees that you need to talk to about their performance or their change in performance over time.  But don’t be surprised if you also identify someone that needs to be put on a performance plan and with intentions to let go if things don’t dramatically improve.

The other action you might decide to take is to withdraw from a market that’s going nowhere or a product line that’s not profitable and never will be.  A mock layoff might cause this realization whereas normal strategy and planning process don’t.  Remember, dead branches exist on even the most lush and healthy of trees.  You must trim those dead branches to have a well-oiled machine.

Maintaining a Well-Oiled Machine

I recommend going through this mock layoff exercise starting when you have ~25 employees and every year 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.

Wait, there’s much more!!!

If you enjoyed this article, you’ll love what I cover in my video library called Founders Academy, which includes all of the key concepts and insights to help you dramatically increase your odds of success using topic-specific streaming video modules.  Click Here to Learn More

“Founders Academy is a must!  Gordon unlocked new value in concepts I thought I was already familiar with.” (startup founder)

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Author: Gordon Daugherty

Gordon Daugherty is a best-selling author, seasoned business executive, entrepreneur, startup advisor and investor. He has made more than 200 investments in early-stage companies and has been involved with raising more than $80 million in growth and venture capital. From his 28-year career in high tech, Gordon has both an IPO and a $200-million acquisition exit under his belt. Now, as co-founder and president of Austin’s Capital Factory and as author of the book “Startup Success”, Gordon spends 100 percent of his time educating, advising, and investing in startups.

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