The Warning Signs Of A Layoff
We're going through a layoff cycle that will accelerate in the coming months. Some think this will be like the Dot Com bust, but I see planning that's more like the Great Recession. Here's what I know so far:
Businesses are planning for a 12-18 month recession and stockpiling cash to prepare for it.
The expectation is that consumer spending will drop significantly near the end of the year.
Business spending is already in a slowdown, which will accelerate for the rest of the year.
Next year will be a near 0 growth year for most businesses.
Businesses will increase spending on workforce automation software.
Mergers and acquisitions will ramp up as businesses look to buy growth.
Layoffs are happening, have been planned but not announced, or are in planning at most businesses.
It's grim but not as bad as the Dot Com bust crowd predicts. Companies will go under this year but not in a massive wave. Any business that isn't profitable and depends on debt funding of any kind to continue operations is at risk of failure over the next 18 months.
2024-2025 is where I see a much larger business die-off start. Most companies can float along for 2 years, but after that, a changing competitive landscape and shrinking revenues will hit laggard businesses especially hard.
If you see signs of a layoff coming, look at new companies with those bookends in mind. That means:
Experienced Senior Leaders
Currently Profitable with Long Term Guidance of Profitability
Strong Balance Sheet
Responsible Investments In short and Long Term Growth
The Warning Signs
If the business isn't profitable and doesn't have a path to profitability in the next 6 months, layoffs are coming. Investors' focus is on free cash flow. Funding is hard to come by unless the business is growing. Unprofitable companies must reduce costs to make their funds stretch as far as possible.
In profitable businesses, unprofitable business units will be hit with layoffs. If you're in a team that's considered a cost center or working on projects that are not connected to core business competencies, layoffs are coming. Core competencies support the mainline business model and customers. The easiest way to look at this is by considering the hit to revenue if the team disappeared. If no revenue would be lost or the ratio of revenue lost to the amount saved is significant, you are a cost center.
Sudden experience leaders departing is another warning sign. People who have been in leadership for over 10 years know how to read the signs. Others have been part of layoff planning meetings. No one wants to be the hatchet person through multiple waves of layoffs.
Leaders drop hints and make odd remarks. I started saying things like, "I'm ready for my package now," referring to the severance package you get when you're laid off. I said it for about 6 months in advance of layoffs. Senior leaders know, and we're not letting you get blindsided unless we are scumbags.
I also primed my network to take my people once layoffs were announced and had recommendations ready for everyone. If you're in leadership, protect your people. They'll never forget it, and you'll never forgive yourself for not doing it.
On the scumbag side of leadership, if someone calls your group together to specifically tell you that your jobs are safe, assume they aren't. If it's a company-wide all-hands meeting, you can feel more reassured, but not much. People compromise their principles to keep their jobs. If a leader no one respects is delivering the message, it's almost a lock that layoffs are coming to your team.
Don't be that leader. If the C Suite has asked you to deliver a message you know isn't on the level, they don't believe you have any integrity, or they don't respect you. You're probably on the layoff list either way. Even if you keep your job, no one will trust you, so your leadership ability is hobbled. No one laid off after you gave them assurances will forget, and any company they land at will not hire you.
A new leader put at the top of your organization is a sign of changes to come. The C Suite has lost confidence in your organization's leadership. The new leader will spend a few months figuring out what's broken and then restructure the organization. That starts with existing leadership departures and continues with layoffs at every level.
Your team's open positions start to be closed, or a hiring freeze is announced for specific groups only. Keep a close eye on any budget reductions that hit particular teams only. That can be money for training, travel, infrastructure, raises, etc. Especially keep an eye on raises. When those are frozen, layoffs are around the corner.
Canceling recurring meetings with external groups is a big red flag. Another is a lack of attention to deliverables or general ambivalence to your team's projects. Work drying up and leaders ignoring your emails are not good. If you hear your leader saying, "I sent an email and tried to schedule a meeting but haven't heard anything back," a few times, layoffs are coming.
Immediately after a merger or acquisition, redundancies will be identified, and layoffs will address them. It's a 6-12 month process in most cases.
For any company that isn't growing stock, buybacks are one of my red flags for a company in real trouble. Buying their stock is framed as believing their share prices are undervalued, and the highest returning investment they can make is in the stock. What's actually happening is the business is sending a signal to long-time investors that it's time to exit. The real message is, "We can't figure out how to spend this money to grow, so here, you take it." The buyback program will boost share prices quickly, giving long-term investors an attractive time to exit.
A new type of investor cycles in who is more focused on short-term gains. They will be very active and have strong opinions on how to run the business. The short-term focus will push the company to make decisions with a 6-12 month time horizon. Those decisions will come at a cost to long-term growth and stability. Layoffs won't make sense after buybacks are announced, and short-term investors flood in. If your company's not growing and buying back stock, get ready for chaos.
A final note to leaders. You're in the most jeopardy. Leadership is the first to go in a business turnaround. Middle leadership, managers to VPs, are the easiest scapegoats for any failures. If senior leadership or the C Suite needs to send a message that they're taking decisive action, leaders take the hit. Reorgs are not kind to leaders either.
No matter what position your business is in, keep your options open. Watch out for blame becoming more important than improvement. Look for signs that other leaders are afraid to make recommendations or deliver bad news to senior leadership.
Be in the first round of departures with another job lined up. If you've been with the company for 3+ years, you can set yourself up to take a severance package and start your next job without a gap. You can also use the severance to take a much-needed break. If the ship's sinking, you have other options, and they're asking for volunteers, put your hand up.