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Stories Inc. co-founder Scott Thompson shares his core beliefs on leadership during crisis, and why doing everything possible to avoid layoffs is of utmost importance.

Watching the Great Financial Crisis of 2008 unfold—from my then perspective as a second-year MBA student—made a lasting impression on me. It permanently drilled into my head that economic boom periods always come to an end, eventually.

There are thousands of reasons why I’m lucky and grateful to be able to call Lauryn my business partner. But, one particular reason is that we share similar instincts about economic cycles. 

Planning for a downturn

Stories Inc. was founded in 2012, at the beginning of the longest bull market in history, which means that global economic indicators were generally positive for the first several years of our company’s existence. Nonetheless, we still focused on building Stories Inc. with a watchful (paranoid?) eye on our ability to weather an economic downturn once one inevitably came up.

We’re fortunate to have mentors that have shown us it’s possible to do this as a small business, like Brian Williams from Viget, who cofounded a digital agency that survived multiple economic downturns in their 20 years, and counting, in business. 

And, in our eyes, ‘weathering an economic downturn’ meant ‘not having to lay off team members.’ We knew that would require us to be very disciplined with our company’s bank account, and we always have been.  

Here’s a slide from our 2016 all-hands offsite (I smudged out the irrelevant points):

I promise that our offsites are not all doom-and-gloom, but we do include that one slide about risks to our business in every offsite. A reference to the possibility of an economic downturn has been on that slide—copied over from one year’s deck to the next—since at least as far back as 2015. 

“No layoffs” was our first priority

So, as COVID-19 turned into a global pandemic, Lauryn and I just assumed we’d strive to get through it without any layoffs of the team. 

Of course, there’s a very real possibility that we come up short on that goal, which would make this article painfully premature.

It’s still early in the crisis, and there’s a lot of uncertainty about what the economic recovery will look like. Also, I recognize that not all small businesses are in the same position. Many businesses have lost all of their customer traffic and couldn’t possibly avoid layoffs.

But, in my eyes, doing everything possible to avoid layoffs during a crisis like this is (literally) the foundation to great leadership. 

Leadership, team members and the hierarchy of needs

It’s been awhile since I read Peak by Chip Conley, so forgive the oversimplification, but in the book, Conley applies Abraham Maslow’s hierarchy of needs (which we’ve discussed on our blog before) to the experience of employees and other stakeholders within companies.

The book encourages leaders to help employees ascend Maslow’s pyramid toward its peak, or “self-actualization,” and doing so increases company performance along the way. The point of the book is to get leaders to start focusing on the higher levels of the pyramid, so naturally Conley doesn’t dwell too long on the base of the pyramid (i.e., supporting employees’ ability to satisfy their basic needs like food and shelter in the form of a paycheck). But I do think it’s apt that those needs are at the foundation of the whole idea. Without them, the whole pyramid crumbles.

Leaders should always strive to lead in such a way that employees think they’ll be able to climb the pyramid and reach self-actualization under your leadership. However, they won’t be able to get in the self-actualization mindset if they have to worry about their paycheck and, thus, their ability to buy food and pay for housing. 

Foundations with cracks

During this crisis, we’ve pointed to examples of companies showing great leadership at the next-level up in the pyramid—supporting psychological needs—by doing things to help employees feel connected with each other despite the lockdown, for example. 

That’s good to see. But if those same companies were to have let go of a lot of team members, then I would argue that their efforts to satisfy remaining employees’ psychological needs are built on a foundation with cracks in it. The remaining employees will have seen their colleagues’ livelihoods disappear, and the remaining employees will have no choice but to worry about their own job security—distracting them from their climb up the pyramid and putting a ceiling on the company’s performance. 

The effects over time will be even more painful than decreased performance.

If team members think that you’ll just get rid of them when the going gets tough, why should they stick with you when times are good? 

Leaders getting it right

Once the crisis passes, people will remember which companies were there for their people—starting with supporting their people with their most basic needs. 

The companies that were there for their people during the crisis will see a boost to their employer brand loyalty, which will mean lower turnover and higher candidate quality.

I could go for a Bloomin’ Onion right about now. Team lunch at Outback Steakhouse when this is all over?

Necessary disclaimers given the circumstances: It’s obviously incredibly hard to know whether – and how many – layoffs are required for survival. You would fail as a leader if your ‘no-layoffs’ policy caused the business to fail when it otherwise wouldn’t have. And many businesses absolutely have to lay people off to survive.