Motivating Employees During Tough Times

One of our company managers sent a note to shareholders the other day that included an ask for advice.

Several underperforming team members had recently resigned and he was considering removing a few more. In his words:

Some people need to be removed from the business. With some of our recent resignations, it has been a good thing for the business either financially or because they were not adding enough value to the business. How do you manage through these times without having the other people on the team feel like they should also be seeking job security outside

How do you remain transparent with the changes that need to be made while still inspiring people to stay together?

My number 1 focus on the business is to get our revenue growing again. Is this the wrong focus? What do I need to keep in mind?

Not surprisingly I have strong opinions on this matter. I’ve been through it in my own companies and worked through this problem with a number of CEOs over the years. But never taken the time to write out my thoughts.

Running a company is a hard job. It’s a lot easier if you meet challenges head on and approach your employees with a sense of respect and directness. Problems are problems. You have them whether you talk about them or not. Great CEOs meet them head on.

A few days after I sent the email the CEO encouraged me to share my response publicly.


I wanted to comment on the latter part of your email. I’ve been through this scenario a number of times as a CEO and also as an advisor to the same. It’s a tough but incredibly shaping experience. These hard moments truly define who you are as a leader and a company.

A strategy that has worked for me in a number of scenarios is to be open with the team about why you are doing what you are doing. Leaders are people who do hard things before they are forced to do them because they want the company to be more in control of its destiny.

A leaner company is, by definition, a less expensive company to operate. So when you make decisions to part ways with underperforming team members you do it for two reasons:

  • To reduce unnecessary costs so that the company is more in control of its future than it was before and,
  • To make it clear to continuing employees that your company has a standard of performance that must be upheld at all times.

So when you speak to your staff you have two goals:

Stave off fears that the ship is sinking.

You do this by tackling the issue head on, ideally in front of the whole company at once. We are a strong company. And we are stronger as a leaner company. We also have to work harder as a leaner company. With fewer people, we have less slack. We also have less friction in the system (lookup Netflix’s experience with early layoffs…they were more productive after than before).

When I advise CEOs on how to handle these situations I use a line that’s been powerful for me in the past: “We took the action we took so we could be stronger, not because we were forced to or because we’re freaking out. Your job is safer because we took this action.”

Energize your top performers.

If you have sub-par performers, you can bet your top performers are wondering why those people still have jobs. You are expressly communicating to your company that a B player can earn what an A player can. A-Players have no incentive to hustle.

When you convey this to our company you don’t want to crap on the people you let go, but you can say things like “we need to be a company of top performers, and we think the company we are on the other side of this action is that.”

When an employee is fearful about the company’s future you can only tackle that with motivation. Facts about burn rate, etc. don’t matter because you took an action that is freaking them out just a week or two ago. So in their eyes, you could do it again.

You have to show them that your decisions were focused on building a strong company. Not just on disaster aversion.

On your revenue focus, it’s your job to decide what the most important focus is for the company. Revenue is either the driver of growth or a measurement of it.

The risk of solely focusing on revenue growth is that you lose sight of revenue quality, cultivating current customers, etc.. I don’t know enough about your business to have a strong opinion here, but I encourage you to think hard about how you can properly break down the contributors to revenue so that individual teams can feel a sense of agency in driving it. Otherwise, salespeople can be the only thing that matter and the company can become reactive. Those approaches often lead to problems.

SaaS Lifespans

This was part of an internal discussion about advice to give a SaaS company that I felt worth sharing. 

There is a limited lifespan for microservices built with an outside platform dependency.

The fragility of these businesses cannot be overstated. They need 1) market mechanics that favor the need for the tool and 2) deficiency in the underlying platform necessitating an overlay tool. Those are for the business.

For a company contemplating an exit, you also need a liquid buyer which is either 1) the underlying platform seeking to correct its deficiency (e.g. snapchat bitmoji, twitter twitpic), 2) a roll up buyer that also sits on top of the platform and seeks to increase its service offering or 3) a sass rollup person who doesn’t care what the tool is but is just good at driving long-term cash flow and will buy it.

So when considering what guidance to give, consider whether you feel that all of the above business concerns are stable enough in medium term to ignore an exit overture which, considering the relatively small size of the acquirer base, is a tough set of conditions align repeatedly.

In other words, be careful not to mistake strong cash flow today as a sign that the business is stable. Sometimes opportunities come at the perfect time. For fragile businesses, don’t be overconfident and pass up an exit opportunity that likely will never come again.

In-Store Tech

I’ve been thinking about this topic a lot recently.

Since a large part of our thematic focus (and portfolio share) is focused on the configuration of the retail store the question of how it will be tackled is top of mind. And based on this CB Insights data, we’re not alone.

I think the general rule that applies to the physical world as applies to software. Master your domain before you add others. And so the successful physical retail companies of the future will be one of three things:

  • Microservices that do one thing well or
  • Platforms connecting the above or
  • Mature companies assembling a full-stack offering of the above two (think Salesforce).

I don’t think this rule applies to solely software services. I think it’s true for items that appear in the physical world.

If you want to be a full-stack physical retail company and you want to tackle the entire store at one time (POS, fulfillment, analytics, digital interactions) you need to do it over time. Otherwise your success will be leveraged against your ability to execute a lot of complex things simultaneously.

That approach never works. Founders who think they can do that as an early stage startup are crazy. I have some experience with this topic.

Not to be cliche but I’m reminded of a well articulated line of thinking from Sam Altman.

Very often, the first thing we do is help hard tech founders find a small project within their larger idea that fits the model of quick iteration and requires a relatively small amount of capital. This project is often the smallest subset of their technology that still matters to some user or customer. It may at first look like a detour, but it’s a starting point that lets founders build measurable momentum–for themselves, for recruiting employees, and for attracting investors.