1) Fire talent. Because of America’s accounting laws, investments in talent are expensed, not capitalized, so cutting back on people, especially really smart, high-priced people, is a quick way to cut costs. The accounting rules only hurt companies who follow them. Talent is the single most important variable in innovation.
This reminds me of a recent Fortune Magazine list of the 101 Dumbest Business Moves in 2007. Number 70 involved Circuit City:
In a cost-cutting move, Circuit City lays off all sales associates paid 51 cents or more per hour above an “established pay range” – essentially firing 3,400 of its top performers in one fell swoop. Over the next eight months Circuit City’s share price drops by almost 70%.
When you fire experienced employees, you are not only cutting costs, you are cutting revenues. These employees know how to close the difficult sales and how to bend the rules to satisfy disgruntled customers. These customers then go out and spread positive word of mouth instead of negative word of mouth.
When your business is impacted by recession, the relationships your employees have with your customers may play a key role in how well you ride out the bad times.
Think about it. If you’re impacted by the recession, you’ll have fewer customers making purchases. The last thing you want is for some inexperienced employee to run off someone who is on the verge of buying something from you.