Three Reasons to Avoid Layoffs

Sustained periods of economic downturn send many small businesses reeling, especially technology startups. Eventually, startups succumb to layoffs.  This is often because many organizations have either been counseled or have been conditioned to think of layoffs as a key cost and workforce management tool. But are all the costs being recognized and fully accounted for?  While the costs savings associated with a workforce reduction are readily measurable, not all the overarching costs are. Here are three factors that every manager should consider when thinking of conducting a layoff.

1. Brand erosion. Let’s say you are a product manufacturer and say your organization decides to layoff ten employees. How likely do you think it is that those ten individuals will either buy your products in the future or recommend your products to someone they know? Not very likely. In contrast, how likely do you think those former employees are to say something negative about your organization? Very likely. If you have positioned your company as an “employer of choice” with a focus on people, a layoff can be very damaging to your brand equity. Not only will the layoff ripple out to existing and future customers, but it will hinder your ability to attract and retain top talent in the future.

2. Morale. Yes, the morale of employees that have been laid off will be pretty bad, especially if there has been no prior warning about the potential for the layoff. It is a well documented fact that the morale of the layoff survivors could be even worse. Surviving employees will work knowing that they could be next thereby severely impacting workplace morale. This will in turn impact their performance which in turn could affect customers and the company’s brand equity. And when the economy finally turns around, these employees are more likely to seek employment elsewhere.

3. Rehiring costs. Some experts have indicated that the costs to hire new employees to replace laid off employees when a recession ends often times exceed the cost of layoffs by 50% or more. Add this to having an organization that is ill-equipped to respond to the marketplace when things turn around and rehiring costs could amount to huge lost opportunity costs.

So, when it comes time to find ways to reduce labor costs, the savvy business manager will look for smart and flexible alternatives. By including all the costs of layoffs in your cost savings calculations, and having the courage to explore alternatives, the small business owner won’t only survive this downturn but thrive.