During my 30+ years leading teams in technology companies, I have seen and felt the effects of some crises and recessions. According to Wikipedia, since 1990, there have been 4 US recessions, the most recent being COVID-19 in early 2020. According to the Recession Probability Model by The Conference Board, a global non-profit research organization about future scenarios, we are on the verge of another recession:
Downsizing and layoffs are commonly used tools in times of crisis and recession. They seem to be used more in technology companies, as these types of companies tend to move and adapt faster. Tech companies seek capital from investment funds to accelerate their growth, but when a crisis strikes, they need to readjust very quickly. However, downsizing and layoffs are not exclusive to technology companies. Tyson Foods, one of the largest US meat companies, and Goldman Sachs, a global financial market company, also announced layoffs at the turn of the year.
Even in favorable economic scenarios, crises can happen due to internal reasons. It’s possible that some decisions did not prove right, which can cause a company crisis without any influence from the economic scenario. A well-known example is Enron Corporation, one of the world’s leading energy distribution and communications companies, which earned US$ 101B in 2000 and, in 2001, filed for bankruptcy due to accounting and tax fraud and a debt of US$ 13B. More recently, we have the case of Americanas. This large Brazilian retail company started 2023 in crisis for failing to record a BRL 20B debt in its audited balance sheets.
As I explained in the article “Product Management in a Crisis“, companies must analyze two perspectives when they realize that they are entering a crisis:
To preserve cash, we should look at the most common causes. We should aim to preserve or even advance revenue streams while looking at all costs with a magnifying glass. In this cost analysis, the downsizing and layoff tools that we see being applied in many technology companies and non-technology companies, such as the examples I mentioned above (Tyson Foods and Goldman Sachs), come into play.
Throughout my career, I’ve been through some crises and had to make decisions to reduce the team. More recently, as an advisor, I have also been helping some product heads and CEOs with their layoff decisions and planning.
I will not go into the people management aspect of this process here, as there are many good articles on this topic, giving details of what to do and what not to do. In this regard, my recommendation is to use empathy to define the best way to act. If I were fired, how would I want to be treated? If I wasn’t fired and stayed at the company that went through a layoff, how would I react to the layoffs and how would I like to be treated? Always work very closely with the people management team. It is not uncommon to have people on this team with a background in psychology, which can help a lot in this planning.
In this article I will talk about the part of the layoff process related to planning to reduce the product development team. How to decrease the team? Should I just reduce the amount of people in all squads and keep the same amount of squads? Or should I think about dismantling some squads? Here are my recommendations:
I will use a hypothetical case to illustrate this example, where I will show the scenery design tool.
The crisis arrived and, after careful analysis of the numbers, you, as the leader of your company’s product development area, reached the conclusion, or received a request from the CEO, that a layoff will be necessary, that is, you will have to reduce the size of the team and will have to make some layoffs. The reduction will need to be 40% of your budget.
You lead a team of 200 people, with a current team of 180 people plus 20 vacancies. Of these 20 vacancies, 10 are new vacancies and 10 are replacement vacancies. The 180 people are divided into 4 product tribes plus 2 structural team tribes as shown below. The 10 new vacancies are to form 2 new squads, the Worf squad in the Star Trek tribe, and the Integrations squad in the Central Systems tribe.
This team of 200 people is focused on achieving 20 objectives and their key results (OKRs). After conversations with your direct reports, and following the steps described above, you can create the following scenarios.
I’ve used this scenario table in a few situations in my career, and I’ve recommended it to product heads, engineering heads, and CEOs who do advisory sessions with me. With these scenarios in hand, you can now talk to the CEO and other company leaders to show the impact of the reduction, as well as alternatives for smaller reductions with also smaller impacts on the productivity of the product development team, so that you can evaluate the options.
Having fewer people will cause the team to drop some balls, meaning you have to make a decision on what to stop doing. Some objectives and expected key results should be deprioritized, as we will have to lay off some people and we will have a smaller team. It’s that simple. Less money implies a smaller team, which implies less things that this team can do and, consequently, less objetives can be achieved and key results can be achieved.
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