The opinions expressed by the entrepreneurs are their own.
The fact is that the global growth profile for 2023 shows a downward trend. According to the IMF forecast, this year the economy will grow by only 2.7 percent, against 3.2 percent in 2022.
In fact, the outlook for advanced economies looks even more discouraging, with the World Bank projecting 0.5% economic growth in the US in 2023, down almost 2% from previous iterations. This has pundits scratching their heads as to whether or not we are headed for another major recession soon.
Team cuts are just around the corner, right?
Presumably driven by a protracted economic downward spiral, thousands of businesses across market verticals (mostly tech, media, finance, and healthcare) announced massive layoffs as early as 2022, and these endless firings continue.
Here are some of the most astounding numbers.
In January 2023, Google and Alphabet CEO Sundar Pichai announced the layoff of 12,000 team members at the company. Disney plans to cut at least 7,000 jobs. Amazon will lay off 18,000 employees. Goldman Sachs to lay off more than 3,000 employees, Philips to cut more than 6,000 jobs worldwide, and the news of massive layoffs just keeps on coming. In total, more than 125,000 people have already been laid off in 2023 by tech companies alone, per layoffs.fyi.
However, the global market slowdown is actually the main factor influencing the massive workforce cuts. While the need to cut costs may be common ground, in a more nuanced context, not so much.
In particular, many companies in the technology sector, such as Peloton or Zoom, are facing the challenge of overstaffing, fueled by their exponential growth dynamics during the Covid-19 pandemic, which has become practically impossible to maintain during its downturn.
Meanwhile, in real sectors like the automotive industry, some companies such as Jeep Cherokee explained that their plant has been idled amid rising costs of electric vehicles (EV).
Related: Layoffs abound in the industry, but these big companies are still hiring
But the most surprising thing is that some commentators suggest that many companies are simply “following the herd” in their niche market. Simply put, their assumption is that while the widely predicted recession is forcing businesses to tighten their belts one way or another, laying off employees is their straightforward solution that seems to be working for their competitors. As business professor Jeffrey Pfeffer told Stanford News, “They’re doing it because other companies are doing it.”
And the truth is, mass layoffs don’t actually save money in the short term (imagine the severance pay), and can even flatten business growth for mid-sized companies and small startups.
How to cut costs without firing your team
Given the persistent decline in economic activity, partly due to prolonged supply chain disruptions and skyrocketing inflation, cutting operating costs seems like a reasonable idea. Not only can it take additional pressure off the shoulders of business owners during uncertain times, but it can also free up additional resources to fund growth areas.
And, as mentioned above, letting go of your team members is hardly the best choice (unless you’re overworked, of course), so it’s important that you remove the latter risks from the equation right away.
So how do you determine if you are overworked?
Basically, you need to analyze the span of control of the middle manager in your company, or in simple words, how many people report to each of them. This number can vary depending on the type of firm or industry. However, the general point is that if it is below 5-6, the organizational structure most likely has too many levels, with the average optimal management-to-employee ratio currently ranging from 1:15 to 1:20 ( 25).
Let’s say you don’t have obvious problems with a high span of control, and the risks of overwork are none of your business. Consider the following checklist to evaluate opportunities to reduce overall company costs without impacting your business processes or downsizing your team.
Quite predictably, even small startups with limited funding tend to use most of the paid SaaS solutions in their day-to-day business (for example, from CRM and task management tools to just G Suite and accounting software).
And while the importance of such tools can hardly be questioned, their actual selection as well as pricing is sometimes questionable. What I’m saying is that while a high-quality product costs money, negotiating a discount is a far less frequently used option than you might think, which is a huge omission.
And if you’re paying for two similar management tools with minor differences, maybe using the more advanced version of one of them will actually be cheaper, especially in the long run.
Office space for rent
Although the end of the acute period of the Covid-19 epidemic has encouraged many businesses to return to offices, the possibility of choosing a hybrid office can significantly reduce the cost of expenses.
Let’s do some quick math. Imagine that you had 10 people in the office on a permanent basis, and think about rearranging the office space into a commonly used space that can accommodate 5 people at a time. This will cut desk space in half and also reduce the office space required for communal areas (such as kitchens, private rooms and meeting rooms) by at least 20%.
Taking into account that the average area of one employee was estimated at 75-150 square meters. The one in this example can help reduce the required office space by at least 200 square feet.
In simple terms, this could save you about $7,000 a month in office rent in, say, Seattle.
Related: Looking for a new office for your team in 2023? Here’s what to consider.
Although your optimal team as it is will certainly help speed up operational processes, you may limit the process of hiring new employees who may be needed for your newly developed business projects.
That is, if you’re hoping to launch two new products in 2023, it’s probably a smart idea to choose and prioritize launching just one during the downturn to conserve financial resources. Another way to reduce costs on human resources would be to adjust rewards and recognition programs for employees, i.e. make them more aligned with business KPIs. That way, you’ll be able to keep your team motivated without spending money on annual bonuses.
At the end of the day, every business owner has to decide how to prioritize costs and whether or not to downsize during a downturn, but navigating a company in uncertain times usually requires a strong team, so why risk losing it by having one? have you invested time and resources to build it? That is the question.