The Cycle of Growth, then Efficiency

This past week I talked with two founders. Both of them have wildly successful companies that are still growing. But they told me they’re reducing head count. For most companies, the customer landscape has changed—but for these companies, not so much. They’re still growing at a healthy clip (just not as fast as they were). Even so, I wasn’t surprised. Their need to get leaner is rooted in decisions made during a period of rapid expansion.

Both founders have hired aggressively over the last few years as they’ve grown rapidly. In that scenario, roles can be created without anyone knowing whether they’re needed. I’ve seen companies hire someone to do manual tasks that custom software could handle. The person responsible for the department doesn’t have time to delve into what each person is doing or how they’re doing it. They just know their team is maxed out because of the company’s growth, so they go to HR and ask to add more people. And even if they knew that software could help them, it probably wouldn’t get built. Engineering teams are focused on customer-facing work to increase revenue—new product features, bug-fixing, etc. They don’t have time to consider projects that would make internal teams’ lives easier.

Quality can slip, too. Instead of hiring an A player in a two-month recruiting process, you add a B player because you have just thirty days to fill the role. Over time, the quality of your team falls, which has all kinds of ramifications down the road.

One day you look up and see people who aren’t fully utilized . . . employees without a clearly defined role . . . team members who aren’t carrying their weight.

Both of these entrepreneurs see staff reductions as a way to address these issues. In my opinion, they’re able to consider layoffs because their focus has changed. They know it’s easier to keep a customer than find a new one (especially in this environment). They want to better serve their current customers in order to reduce churn. At this moment, efficiency, not growth, is the goal.

Business is cyclical, and I suspect that despite the pandemic, what’s happening with these companies is part of the normal business cycle.