Adopting a Cost-Control Mindset During COVID-19

The distance between corporate denial and company layoffs are a lot shorter than most people realize, especially during a crisis.

During the initial phase of the COVID-19 outbreak, some of the biggest corporate leaders waved off the potential economic impact of the coronavirus. Ironically, these were the same people who were grappling for survival just a few weeks later and were considering layoffs to make it through in one piece. 

That’s what happens when we fail to address the elephant in the room.

During times of volatility and uncertainty, complacency is the key to survival. Even e-commerce businesses haven’t made it out unscathed during the COVID-19 outbreak. If this teaches us anything, it’s that confronting some of the world’s most damaging taboos could spell the difference between a business lost and a business saved.

Every leader is obligated to make responsible decisions to keep their business afloat. And sure, it’s natural to have a knee-jerk reaction and default to a cost-cutting reflex. In fact, almost every business owner has probably considered at least some form of financial action as the result of the coronavirus.

Maybe you find yourself among those with their guns drawn, at a standstill. 

But not all is lost. Keep in mind that those who manage the economic effects of the COVID-19 pandemic in a clear and compassionate way will come out stronger from this crisis than ever before.

Why Layoffs Should Be Your Last Resort

The coronavirus has forced a lot of companies to rethink the way they manage profitability. And this might have prompted them to take action on their largest expense and most important asset: their workforce. 

But the truth is, job cuts should be the farthest thing from your mind.

Former telecom giant Nokia learned this lesson the hard way. During the 2008 financial crisis, it lost hundreds of millions in sales and profits after a massive layoff at its Bochum factory in Germany.

The shutdown resulted in job losses for 2,300 disgruntled employees that spurned street protests and boycotts. The damage it brought on to Nokia’s brand image was irreparable.

But there was no turning back.

Here’s the thing: layoffs are just a band-aid solution to cutting costs.  More often than not, they end up creating more problems than they solve.

Data shows that “survivors” of redundancies show a decline in performance after the layoff. And in some extreme cases, survivor’s guilt could drag the rest of the team down if a business fails to address the issue properly after benching employees.

So how do you avoid this from happening?

Rethinking Cost During COVID-19

One of the skills required for the future is ambidexterity, or the ability to look at both costs and reinventions when bouncing back from a crisis. 

This comes with the responsibility to steer your company toward success by sharing initiatives, prioritizing cost-cutting projects, and exploring new revenue models. By walking the innovation tightrope, you can identify greater opportunities for growth while keeping your team motivated.

You could learn a thing or two from software companies and other brands in the tech scene. In their industry, continuous reinvention is the key to survival in the long-term. And that involves creating with courage instead of simply cutting corners.

With that said, here are some practical tips to keep in mind to minimize the impact of the pandemic on your overall costs.

Be Open

Some leaders assume that if they hold their cards close to their chest when a problem arises, employees will have less to worry about. 

But just because you’ve hit a rough patch doesn’t necessarily mean you’ll scare away your best employees. 

Everyone is aware of the situation we’re in. So instead of making your employees second-guess what the future holds, let them know about the financial health of your firm and what goals you’ll prioritize moving forward. 

Avoid empty statements like “We put our employees first.” This can be confusing and counterproductive, especially for people worried about their job security. A better thing to say is, “We’re planning a series of changes that will help ramp up job security.”

Share the Pain

In 2015, Gravity Payment CEO Dan Price made headlines when he cut his pay from $1.1M to $70,000 so he could pay all his employees at least $70,000 each. And it was all because he was committed to laying off zero of his employees in the face of financial adversity.

Five years later and the company is doing well, with reports showing that Gravity Payment has gained 80% more customers.

Consider taking a page out of Dan Price’s book. Generous salaries translate to engaged employees, and it could have the potential to save a business operating in the red.

So lead by example and make sure the cutbacks affect your day-to-day life, as well. As the CEO, you should take the biggest salary cut. If it’s just your team taking the flak, your staff will end up feeling like saps while the C-suite goes on unaffected.

Consider Crowdsourcing

There’s a lot of reasons why some members of the top management shy away from the idea of open consultation. 

Opening the floor for suggestions from employees could result in chaos, and others could turn resentful when their ideas are shot down. 

But during times of crisis, it’s critical that you ask your team for ideas. It shows that you care about what they think, and it can help you gain stronger buy-in for the goals you plan to prioritize moving forward.

Start off by telling your workforce that you want to prioritize initiatives with lower capital and risk profiles, positive impact on cash flow, and better job security. That way, your employees will feel more motivated to share their ideas on how to keep your business afloat.

Embrace Alternatives

When cutting costs is unavoidable, you should be transparent and timely in communicating your next move.

For instance, it pays to tell employees that there aren’t any holidays in the cards for the year until your company gets back to being profitable again. Or consider adopting a four-day work week for roles where you have an excess capacity. Data shows this can help you reduce up to 20% in costs. 

You can also offer a “sabbatical” benefit (to take the stigma out of an unpaid leave) with the goal of avoiding layoffs. You’ll be surprised to find out how cooperative your team is when it comes to overtime bans, salary increase freezes, and reduction of VLs when it comes to helping out the team.

Another thing you might also want to look into is decelerating pay decreases for team members with a lower salary range. For example, if you’re planning a salary cut, you can reduce the salary of your highest paid employees by 10%, mid-range employees by 5%, and so on and so forth.

By adopting this cost-reduction strategy, you can protect the most valuable employees and ensure that no one gets the short end of the stick.

Conduct Spring Cleaning

As a business owner, you have a bird’s eye view of your organization. Even though this means you can see the bigger picture, there may be some things that you might have failed to pick up on your radar.

For instance, there might be some tools being used by your team that could be adding to your overall costs. These include Microsoft Word licenses, extra Dropbox storage, Instagram scheduling tools, and the like.

Take stock of what you can cut out of the picture by asking each department to audit the tools they’re currently using, and whether it’s absolutely necessary. If there’s any tool you plan to suspend, assure your staff that it’s just a temporary cutback.

Conducting a spring cleaning will also leave you with the tools that you’ll need moving forward.

Whether it’s a booking software or your CRM system, get in touch with the company that owns these tools and ask them if they’re willing to provide a discount to get you through these tough times. 

Tools like HubSpot have already extended discounts, so it’s worth a shot if it means minimizing cost.

Keep Your Cool

In Sweden, there’s a saying that goes, Is i magen, or “ice in the belly.” This describes the ability to stay cool during a critical situation.

It won’t stay this way forever. So check yourself every now and then in case you’re treating negative indicators for your business all in the same way.

For instance, if one of your core clients is a movie theatre and they’ve pulled out, consider the fact that their industry is taking a huge financial hit at the moment. That’s why it would make sense for them to hit pause on your project. 

Or if one of your hospital clients decided to discontinue its services with you, it might be because they’re focusing their resources on managing the high volume of patients they’re receiving.

But don’t mistake Is i magen for giving your team members the cold shoulder. Now is the time to communicate with care and lead with compassion. And that means being sensitive to everyone’s needs more than ever.In need of a cost-efficient digital marketing solution to propel your business to success? We’re here to help. Get in touch with Growth Rocket today.