Photo by Jose Gallardo
In the startup world, growth often feels like a runaway train – exhilarating but dangerous. I encountered this firsthand when I was called into a startup that had expanded rapidly to over 30 employees during boom times. As the financial landscape shifted and storm clouds gathered, I faced one of leadership’s most challenging tasks: strategic downsizing.
The word “layoffs” carries a heavy emotional weight, but what many don’t realize is that the real challenge isn’t just deciding to reduce staff – it’s determining precisely how to reshape an organization to weather the storm while maintaining its ability to thrive once the clouds clear. This is where what I call the “strategy portfolio approach” to staff resizing becomes crucial.
When I stepped into this situation, I knew that traditional across-the-board cuts wouldn’t suffice. Instead, I developed a methodology that required justifying each position we kept, rather than simply identifying roles to eliminate. This flip in perspective proved transformative.
Think of it like pruning a tree rather than simply cutting it back. Each branch you keep must serve a vital purpose – either supporting current survival or future growth. This approach forced us to think deeply about our core strategic needs and future direction, rather than just immediate cost savings.
The strategy portfolio approach involves several key elements:
First, we had to identify the absolute core functions needed for basic business operations. These weren’t just about keeping the lights on – they were about maintaining the essential services our customers relied upon.
Second, we needed to preserve key capabilities that would be difficult or expensive to rebuild later. Certain specialized skills and institutional knowledge, once lost, could take years to recover. These became strategic assets we needed to protect.
Third, we had to maintain enough capacity for future growth. A common mistake in downsizing is cutting so deeply that the organization can’t capitalize on opportunities when conditions improve. We needed to keep what I call “growth seed” positions – roles that could help scale operations quickly when the time came. I felt strongly that each person we kept on had the ability to be leaders in regrowing the business.
The process was intensely personal. For each position we considered keeping, we had to build a clear strategic justification. This wasn’t about individuals’ performance (though that played a role), but rather about how each position fit into our survival and recovery strategy. It meant making difficult choices between talented people based on how their roles aligned with our strategic needs.
What made this approach effective was its forward-looking nature. Rather than simply cutting costs, we were essentially designing a lean but complete organization that could both survive and eventually thrive. It was like solving a complex puzzle where each piece had to serve multiple purposes.
The results were painful but rewarding. We emerged with a smaller but more focused team, each member carrying clear strategic value. More importantly, we maintained our core capabilities while preserving our ability to scale when conditions improved.
The lessons from this experience extend beyond crisis management. Even in stable times, the strategy portfolio approach offers a valuable framework for thinking about organizational design. It pushes leaders to justify every position in terms of strategic value rather than historical precedent or comfortable familiarity.
For other leaders facing similar challenges, I offer this advice: Don’t just think about who to let go – think deeply about who you need to keep and why. Build your justifications from the ground up, focusing on strategic value rather than current tasks. It’s a more challenging approach, but one that creates a stronger foundation for future recovery and growth.
In the end, while the immediate goal was survival, this approach helped us create something more valuable: a leaner, more strategically aligned organization ready for whatever challenges lay ahead.
***
The content of this post, and the Schumpeter’s Gale blog generally, are my opinions, and for educational purposes only. This content is not legal or financial advice. Always consult professionals when faced with circumstances where you may need to implement something related to a topic you read about here.
Some of the content may be generated with the use of GenAI tools, but always through a direct and personal prompt input by me, and will never be published without a review and editing by me.