Busted! Three Leadership Lessons When Business is Bad.

Earlier this week I posted 3 lessons for leading teams during “boom” cycles.  Unfortunately, sometimes what goes up, must come down.

Since pain can drive home lessons in a way that pleasure cannot, the lessons I’ve learned during bust cycles have been profound and lasting.  The emotional toll on leaders and employees alike during a bust cycle is unrelenting, and having managed my way through two very painful busts in the technology space (2001, 2008) I pass along these observations which are based on painful experience.

1. Nature abhors a vacuum.

This principle of physics metaphorically applies to teams that are having difficulties. If there is a “vacuum” of information (e.g. management doesn’t communicate what is going on), then employees will “fill” the vacuum with their own information (aka “rumors”).  Often the rumors are worse than the reality, so – as Deputy Barney Fife said in Mayberry – you’ve got to nip it in the bud.

A corollary to this point is as follows:  “Uncertainty consumes slack resources”.

This point is true when business is good as well, of course. But during busts, there is more uncertainty, and there is more “slack” because people aren’t as busy.

Good leaders can feel a vacuum forming around them, and they step in to fill it with their own information – not someone else’s.

2. Lock in your A players.

Keep the following in mind:  Companies everywhere during a bust are stack-ranking their team and cutting the bottom performers, but they’re always on the lookout for Real A players to hire.  If things are tough at your company during a bust, your A players might start to get nervous. Maybe they’re worried about getting caught in the next RIF.

Here’s how you solve it:  Pull a few select rock stars aside – the ones who visibly add to the culture and effectiveness of the company – and give them an agreement that guarantees a generous severance if they are laid off prior to a (distant) date.  In most circumstances the Board of Directors will approve a smart retention plan like this, since a mass exodus of their best people will depress valuation more than the economic downturn of the moment.

There are other variations on this theme, such as retention bonuses. Either way, make it too expensive for them to walk away, and convey to them that while they probably won’t be riffed, even if it happens they’ll walk away with a big check.

It’s not foolish for companies to do this – it is good business.

3. Seek the protection of Don Corleone.

If you’re truly living in a bust cycle, then the big families corporations are feeling the pain as badly as you.  And when they are in internal meetings, they are scratching their heads trying to figure out how to get organic revenue growth moving.  During times like this, they are prone to aligning themselves with innovative companies who they suspect can lead them to new markets.  You need to kiss their ring, call them “Godfather”, and become a member of their family – at least for a little while.

During bust cycles, I have created partnerships with huge, multi-national corporations, and while they don’t spend money foolishly, they spend enough to help you weather the storm.  Also, since they don’t move quickly, by the time they finally roll out your joint solution, the bust is almost over.

Because what goes down, must go up.

Agreements?  Disagreements? What you add to this list?