Guest post by Chris Locke
The Coronavirus crisis has resulted in layoffs on a scale never seen before. Recent surveys show that even before this, nearly three in four in the next three to five years.
But what many CFOs and CEOs involved in such decisions don’t always take into account are the impacts redundancy programmes have on their businesses. The numbers speak for themselves.
With a plummeting economy and global crisis, widespread redundancy can feel like the only choice. The company needs to conserve cash.
But by reducing their size to protect themselves, they can irrevocably harm themselves in the process. Deepak Datta’s research found the days following layoffs saw a neutral to negative effect on stock prices. Not surprising.
But what happens later is what organisations should consider. Following layoffs, the majority of companies took on average three years to return to pre downsizing profit margins.
When faced with a seemingly impossible dilemma, the answer must be to think and act innovatively. As COVID-19 changes the shape of many industries, so it is we need a new approach to layoffs.
By offering this as an alternative pathway to traditional outplacement, a company can reap a huge array of benefits
This is exactly what Nokia did ten years ago when it was faced with making over 40,000 job cuts. It opened centres across the US, Europe and India to help those faced with redundancy transition into a new role or career.
One of the pathways it offered was its ‘Bridge Path,’ an entrepreneurial stream for employees who had an idea for a startup. Since its inception, Bridge has helped more than 1,000 start-ups get up and running.
The scheme is credited for fueling the rise of the Finnish tech ecosystem and helping drive faster innovation for Nokia as nearly 20 per cent of startups created secured ongoing commercial agreements with Nokia as they were solving critical challenges.
By offering this as an alternative pathway to traditional outplacement, a company can reap a huge array of benefits, as well as help negate many of the issues that happen with standard lay-off programmes.
The investment for this can be repurposed from the existing redundancy/outplacement package, and the staff being exited are offered an opportunity to develop the skills and mindset needed to build their own startup.
In offering this pathway, it enables those being laid off take control of their future and develop their ideas into revenue-generating businesses as well as the company to take an active role in driving the local economy and creating jobs.
Times of rapid disruption provide ample opportunities for startups to take advantage
Many CFOs can also consider running a seed investment fund for startups created from this initiative who can solve real challenges facing the organisation, which give the business opportunity to benefit from future growth and partnership opportunities.
Many will be worried that the current economic climate is not conducive for startup success. They couldn’t be more wrong. It is no coincidence when you look back into history that some of the largest companies started during times of economic downturns.
This is not just the most recent ones such as Uber and Airbnb – companies such as Microsoft, Disney and IBM were all founded during deep recessions.
This is because times of rapid disruption provide ample opportunities for startups to take advantage. Coronavirus is reshaping every industry,which lowers barriers to entry and provides huge opportunities for startups to address new consumer demands.
Also, the barriers to entry for some business models have never been so low – for example you can set up an ecommerce business in hours and be trading on platforms with huge customer reach.
How to get started
For CFOs that want to pioneer this alternative pathway, there are a number of key factors to make this a success:
Collaboration: The best startups are those founded with teams that have complementary skill sets – but in a corporate environment the chances are people who work in tech development don’t know sales colleagues etc. because they work in different locations etc. This means you need to create a virual space for employees being let go to meet, make connections and potentially form teams around common problems they want to solve.
Involvement: You need to be clear on the degree of your involvement – are you prepared to offer access to unused IP, assets or data? Are you just offering the opportunity to develop the skills and mindset for ex-staff to create a startup, or are you willing to invest in ideas that could help solve your challenges? Nokia allocated a fund and its programme enabled ex staff to pitch for seed capital
Partnership: If you are investing in startups you need to make sure that the programme is supported with a partnership that will provide the best experience for your people to maximise success. Those wanting to build new startups need access to the right training, coaching and mentoring to develop the right skillset and mindset as well as being given the right introductions where appropriate to early stage VC`’s and Angel investors.
Communicate: This is a great initiative and can be used to attract new talent, build stronger relations with the communities and customers. Therefore, you need to have a comms plan to share the impact of this scheme with key internal and external stakeholders, showing that you live the people first values when they leave the company as much as when they joined.
Objective: Don’t forget, this is not about unicorn building, but empowering your people to create their future. From the Nokia programme, a third were focused on building high growth startups but two thirds used it to launch their freelance career or pivot into a new industry altogether.
They say the most important factor in success is timing, and whilst that might feel counter intuitive right now, Coronavirus is providing the perfect timing. CFOs have opportunity to play a leading role in reshaping this future, not only through the people the company retains but also in the people it has to let go.
Chris Locke, CEO UK and Europe, Rainmaking & Head of Startupbootcamp ASPIRE