By Carol A. Szatkowski In January, 2001, the recruiting agency I founded in 1989, Clear Point Consultants, had just come off its best year ever. Less than a year later, revenue had withered, all the employees were gone, and I was left pondering some gut-wrenching questions: How could I have achieved such success and lost it so quickly? What did I do wrong? Was there any one else out there in such dire straits? Most significant, had I done the right thing by the people I had hired and then had to let go?
The answer to the question about what had happened was easy, of course. The high-tech industry upon which my business depended -- we placed technical writers and e-learning professionals -- had simply crashed in the short span of less than a year.
With the benefit of hindsight, I might have done some things differently, such as not expanding as fast as I had. From 1997 to 2000, thanks to the dot-com boom, my outfit was growing a staggering 30% to 35% a year, and I couldn't fill employers' requests for workers fast enough. Anticipating continued growth, I took a chance and sacrificed my then-considerable profit margin to increase my staff to 39, from 14, rent office space in Beverly, Mass., and open a four-person satellite office in New York City.
THE TOUGHEST QUESTION. Even if I had made different decisions, there was no arguing with what happened to high tech in 2001: It came to an absolute screeching halt. We had 200 jobs to fill in January, but by May that number had shriveled to 50, and by September to 25. Clients were telling me that every requisition for a job to be filled had been canceled.
This led to the question that wasn't as easy to answer: What was I to do about the people who worked for me? As a business owner, I bring a personal perspective, an emotional connection to what I created, and I extended those feelings to my staff. Hiring the right people and enabling them to make significant contributions had been critical to my concern's success.
By April, I knew that I would have to make what would be the first of several rounds of layoffs. That month, I had to sever relations with three of my staff. In June, four more, and after the terrorist attacks of September 11, when business took yet a deeper dive, an additional five. By November, when I laid off all of the remaining workers, only eight of us were left.
Throughout the trauma, I believe I've learned lessons about this most painful reality of startup life that would be of benefit to other entrepreneurs. The first is that no matter how distasteful, downsizing is something that can be handled well. And doing what it takes to "downsize well" ultimately pays dividends, both at the time of the layoffs and in the future.
IF IT HAPPENED TO ME... Let me explain. During the first several rounds of my outfit's downsizing -- in April, June, and September -- I laid off my people by the book. I informed the person who managed the individual and let that manager execute what needed to be done, such as providing the terminated employee with information about health and unemployment benefits.
By November, however, when I was down to my last seven employees and had to lay off three of them, I found that I needed to change the way I handled things. By that time, I had done everything I could to keep the business from collapsing, such as slashing my budget and controlling expenses to the best of my ability, and these were the people who had stuck it out with me.
I had also gotten back to a business that was small enough so I could deal on a personal level with everyone. I could relate to the way they were feeling by asking myself how I would like to be treated if I were the individual about to be laid off. And the answer was obvious: I wouldn't want to be informed in a clinical manner and simply be shown the door.
And so, without even informing my lawyer -- because I didn't want to hear the advice that I knew he would give -- I threw out the rules. Rather than bring the people I was about to terminate into my office individually (or into a manager's office,) I called all seven of us together for a meeting. I said things were not looking good for the fourth quarter and that I would have to lay off three of them.
SHORT STRAWS. Then, I said: "I'm telling you this in a group because we're all so close to the bone right now. We all need to support each other." Finally, I named the three. None were surprised. All took the news with grace and dignity. They hugged me and said they were grateful to have had work for this long, given the state of the business. There were tears, including mine.
No one was ushered abruptly to the door -- those days were over for me. The workers who were let go merely transferred their accounts to the remaining staff, packed up and left among a group of supportive co-workers. I even told them to take whatever they wanted: the plants, stationery, or office furniture.
Upon their departure, I sat down with my last four employees, cherished superstars all, sharing my thoughts and answering their questions. While they understood that their own jobs were uncertain, they agreed to soldier on and commit to rebuilding the company. A market rebound was what we were all awaiting.
By the end of November, when that hadn't occurred, I took the last step in this incredible journey -- a journey as much to discovery about the best way to downsize as to the next necessary step for the business. It was clear that I needed to lay off the remaining four, and so I did, using the same personal approach that I took earlier in the month. Again, everyone understood: They reacted by agreeing to assist me in the coming transition.
BEST FOR THE COMPANY. As I consider the past year, I recall a comment from a business acquaintance, who said that I had made a courageous decision by laying off people when conditions demanded it. And I suppose that's true: A lot of entrepreneurs hang on, hoping for the best as the situation gets worse.
In my case, however, I was reacting instinctively from a need to do what was best for the business. In short, I've saved my balance sheet. By cutting back in the nick of time -- indeed, in hindsight, I should have moved even faster -- I've laid the platform for rebuilding the company. By the end of 2001, my outfit was still profitable, I was able to take home a salary, and I will be able once again to secure financing.
All of which I am doing now, as I focus on rebuilding, albeit in a far different way than during the heyday of the dot-com boom. These days, I'm working from home to keep my expenses as low as possible. I'm adding staff on a part-time basis and on full commission but with no draw. Currently, I have two people working for me under these conditions. And I'm diversifying my clientele into areas other than high tech.
SUPPORTIVE RESULT. Most important, by downsizing well, I've been able to answer even that most difficult question about doing right by my people. While I know that I disappointed them, and that disappointed workers can often react defensively and even offensively -- remember that I was prepared for my lawyer's lecture -- I also know that I was wise to use the personal approach when it came to executing this unhappy task.
None of my former employees has in any way expressed negative feelings about what I did. In fact, it has been exactly the opposite: Their support tells me that when I'm ready for a business reincarnation, they will be there for me. The question was indeed difficult, but the answer was manageable: Lay off people the way you would want to be laid off.
Carol A. Szatkowski, 48, founded Clear Point Consultants Inc., in Beverly, Mass., in 1989. She is currently refocusing the business. Entrepreneur's Byline comes to BusinessWeek Online readers courtesy of EntreWorld.org, which is sponsored by the nonprofit Ewing Marion Kauffman Foundation