Layoff Culture Isn't Just Evil - It's Terrible Business

This post is aimed more at companies - we can talk all we want about how destructive layoff culture is to people, but companies care about profits, so let's try speaking their language. 

Hey, companies and execs: do you know what your competitive advantage is? It's people. It's talent. That is the ONLY durable competitive advantage in business. Patents expire. Technologies become obsolete. The disruptors get disrupted by someone else. Trends change. The thing that enables some companies to survive and thrive over decades of changing business environments is their people. 

Most companies realize this, at least to some extent. Look at how many companies express platitudes thanking their teams for a good quarter or a big win. Most companies talk about their culture, how proud they are of it, and the efforts they take to foster and improve it. And it's true - a great company culture attracts and retains employees and creates a wonderful working environment. It's what gets employees to really give it their all to help the business succeed (versus just working hard enough not to get fired). 

If you've ever worked at a successful, growing business in its earlier stages, you probably know what I'm talking about. It's almost a magical feeling - the business is thriving, it's exciting, it feels like people care about each other and are all pushing in the same direction to deliver the next big thing. It's fucking great. 

Layoff culture destroys that.

Once layoffs start hitting, people withdraw. They get nervous. They're more concerned about if their job will be here next week or next quarter than they are about what they can do to help the business thrive. They become focused on themselves and they act out of fear. It's hard to innovate from a place of fear. It's hard to take risks, because if you take a risk and it doesn't pay off, you could be on "the list" for the next wave of cuts. People start looking around more for a new job, just in case, instead of focusing on excelling in the one they've got. They lose hope of turning their job into a career at their company because the future no longer seems so bright. Becoming a layoff culture drives more voluntary employee turnover, and study after study has shown just how costly that is to a business. 

If you want high performance in your business, you need motivated, engaged employees. High-performing teams drastically outperform average teams, and highly motivated, engaged employees outperform less engaged employees.

Look, as a business, profit is important. Duh. You need it to survive. This isn't about putting people over profit no matter what - it's about recognizing that prioritizing your people actually drives profit in the long run. 

Layoff culture is inherently short-term thinking. It's about cutting costs right now to hit the Wall Street number for the quarter or to beat it, to generate a pop in the stock price. But we are constantly told as leaders that we need to think strategically, we need to look long-term. Isn't this a contradiction? Stop worrying about the quarter and worry about the next 5 years. A layoff might make your quarterly numbers look better, but at the cost of the employee morale (and, thus, performance) that you need to succeed over the next decade. 

Nintendo, the video game company, has been in the news lately for something that happened in 2013 - after the disastrous launch of the Wii U, there were calls from Wall Street for layoffs. Nintendo's CEO refused to consider that strategy, recognizing (correctly) that while it might make the bottom line look better in the short term, it would be destructive to the company's long-term ability to innovate and compete in its space (the CEO and executive team even took temporary pay cuts themselves to protect employees - now that's accountability!). Nintendo's business rebounded, including the wildly popular Switch, and as I write this the stock price is back up near its all-time high and roughly 5x where it was in 2013. Nintendo decided to take the long-term view instead of catering to Wall Street's obsession with quarterly numbers and it paid off. 

Prioritizing your employees isn't just about what's morally right. It's also smart business.