Managing Employees During a Recession for SaaS CEOs

For SaaS CEOs, experiencing a recession can be a considerable challenge, especially when it comes to managing employees.

CEOs face many extraordinary challenges during a recession. They need to readdress their company’s strategy, confront operational challenges, look for ways to cut costs and find efficiencies, and more. Yet, after doing this, sometimes these measures just aren’t enough. If that’s the case, CEOs may find themselves in a bind and needing another means to ensure their business’s short-term and long-term success. Sometimes this means deciding to reduce employee headcount as a last resort.

Every SaaS CEO will recognize the bread and butter of their business is the employees; without the employees, there is no business. So, what does a CEO do when cost saving measures are just not enough? In a recent panel discussion, we asked a group of seasoned software executives for their opinion on the matter. All three panelists faced major downturns before, including surviving the dotcom bubble, 9/11, and the Global Financial Crisis. During those times, each panelist had to make difficult decisions regarding their employees. We summarized the key points from the discussion and the advice they had to offer below:

Reducing Headcount

First and foremost, when managing employees during a recession, sometimes it will be necessary to reduce headcount, a difficult scenario some SaaS executives must face.

Terry Slattery, CEO of CheckpointID, faced the decision to cut headcount during the GFC. At the time, Terry was running He made an effort to retain the majority of his 560 employees but needed to remove those who were unhappy and/or unproductive, quickly. He laid out three groups of employees every company has (see clip from webinar):

  1. The happy and productive
  2. The unhappy and productive
  3. The happy and unproductive

When going through a recession and needing to make cuts, it’s important to reflect on these three groups. For group 2 specifically, it is important to recognize these employees. In different circumstances, these individuals would likely leave the company. In recessionary times, these individuals may stay only because they have nowhere else to go. Terry offered the following advice: “I would say for your management team getting ready for a recession: the second and third groups, you’ve got to move them out. They’re not going to move out themselves and you’ve got to be aggressive, you’ve got to make the moves quicker than you normally would.”

Take Action Now to Keep a Great Team

If a significant reduction is necessary, cut aggressively and deeper than you think needed. Vinay Bhagat, who was running the company he founded, Convio, learned this lesson quickly as he understood a reduction in force was necessary during the dotcom bubble. He had hired ahead of revenue in order to expand rapidly but when the bubble burst, he understood cuts were needed. During this time, he realized reducing headcount in waves can cause uncertainty in employees’ minds and make them worry about their job security which is the reason he suggests cutting aggressively and cutting quickly.

Kent Hudson, founder of Dude Solutions, understands that to be successful you must keep a great team. In order to do that, you have to make sacrifices to ensure the best, albeit smaller, team is motivated and productive. He used this belief throughout each downturn he encountered, holding one concept close to him: “I don’t know how long this storm is going to last, but I got to have my best people, my great team, on the backside.”

Maintaining Employee Motivation

When times are uncertain and reductions in headcount are necessary, employee morale can diminish quickly. Scenarios like the one described above are all too common and create an ineffective, insecure workforce. With possible further reductions in force, an extremely uncertain market, and peers losing their jobs daily, employees may feel vulnerable. As Vinay experienced working through the dotcom bust, it is imperative to ensure employees feel protected (see clip in webinar). He states, “Employees who survived any given reduction in force always felt that there was a target on their back. They were worried and it made them less productive.” While this may be challenging to address, there are some measures that can be taken to support the retained employees.

Kent kept employees at Dude Solutions motivated by having his team focus on their clients’ pains and fears. The outcome was that his team stopped worrying about their own fears (see clip from webinar). He and his team set out across the country to hold best practices seminars for customers and give them tools to “survive” the crisis – offering their expertise without pushing their product. Eventually, the seminars turned from how those companies could survive to how they could succeed. The positivity in these seminars captured the goodwill of both Kent’s clients and his team, which in turn earned him the respect and loyalty of his employees.

It’s the Small Things

Small steps taken by management can show the retained employees they are respected, while keeping them motivated and productive. During the GFC, Terry’s team understood the hardship the company was working through. Small measures showed the employees they were valued. For example, at the time, Terry’s company required business attire. Management quickly learned accessibility to dry cleaning was big expense, so they relaxed dress codes (see clip from webinar).

Keep Communication Open

With uncertain and unprecedented times, employees need to understand those at an executive level have a clear plan. If there is a void, employees will fill it with negative information. It is imperative to communicate to keep the landscape positive. Kent shared a piece of wisdom from his parents, “You can either work or you can worry, but isn’t it rather foolish to do both?” (see clip from webinar). A good strategy and execution plan will help employees worry less, feel more in control, and work harder.

Another part of keeping communication open is creating an environment in which employees can be forthcoming with input and have their voices heard. Transparency is key. As Terry explained, “Your employees get it and the cuts that you’re going to make and in the tightening of the belt, they’ll understand it…Preserving cash is something that every business will be doing for the next foreseeable future. Creating different ways to do that with your employees’ input is how you’re going get through this,” (see clip from webinar).

It Isn’t all Drear.

Reductions in force can assist companies in building stronger teams. For example, Kent reduced sales heads to ensure his top performers were meeting their compensation expectations. Additionally, reductions in force are unfortunate, but the upside is when you go to backfill, the economy is flooded with good candidates who have been laid off.

Preserving employee motivation can improve morale and allow employees to feel valued. Small changes (like simple daily check-ins) can help employees feel appreciated and in turn, become more efficient in uncertain times. Keeping communication open fosters a positive work environment and can channel negative, worrisome energy into hard work. It can also help employees feel as if their concerns are being heard and addressed.

For SaaS CEOs, experiencing a recession can be a considerable challenge, especially when it comes to managing employees. The reality is: those companies that survive come out stronger and more prepared for the next decline.

If you’d like to view the full discussion, please see the recorded webinar.

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