How to Downsize a Family Business

There is no way to do it easily or without emotion, but head’s-up preplanning will yield the best result.
Larry PuttermanDecember 13, 2012

For more than 25 years, the family business I ran had a policy to never lay off employees. But finally there came a day when the business was being hammered by imports from China, and the only chance to survive lay in finally breaking the policy. And we needed to reduce not only rank-and-file head count but also management head count.

We started by reviewing the financials and modeling different scenarios for overhead and worker head count. That was quite mentally challenging. There was a lot of emotion. There was a union, many longtime employees, and family members who were going to be affected.

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After an emotional week of going back and forth on the numbers, our top management team agreed on the amount of daily production we could support in each department. That allowed us to calculate how much cost needed to be cut from each department. We then translated those numbers into head counts and worked out a plan to downsize as efficiently and compassionately as possible.

The top management team, consisting of the president, executive vice president, and CFO, agreed the plan should be executed within three weeks so as to not draw out the emotional impact it would have on those involved.

We started with line management. We had several meetings to discuss the problems it already knew existed and elicit its support. We told each department what its final head count needed to be and directed it to come back two days later with its recommendations.

Communication was vital at that time. We emphasized to the managers that all discussions around the layoffs had to be completely confidential. We explained as thoroughly as we could how we were working to save the business. We educated them that, even though some people would lose their job, but most jobs would be saved instead of all being lost. And we kept our promise to keep them up-to-date on the plans.

Two days later we met with the managers, only to learn that none of them had been capable of building a plan, because they didn’t want to let anyone go. So we had to work with each supervisor individually to arrive at the correct head count. In part, that involved working out unique, case-by-case solutions, such as having multiple departments share an employee we didn’t want to lose. In the end, there was a lot of creative compromise.

Union Surprise
We thought the next part would be the toughest, but found just the opposite. We met with the union representative from each department and explained why we had to delete some jobs to save others. We found out fast that everyone already knew the business was in financial trouble, because the employees’ hours had been reduced.

In fact, one of the union stewards stood up in our last meeting and said she knew we were doing everything we could and they appreciated our efforts to keep the factory open. It was big surprise that actually brought tears to my eyes.

Going forward, we set up a weekly management meeting chaired by the CFO to review every expense, not just labor costs, and delete those that were unnecessary. We also set up a monthly meeting to review all expenses against the budget.

The managers and union members being laid off understandably had questions. We used a baseball analogy. It wasn’t that he or she wasn’t a good employee; we simply had to have the top player in each position, and there could be only one top player. We wished each of them good luck, explained their severance packages, and told them we would give them any recommendations they would need. It is not easy to say good-bye to a long-term employee, but we did it with as much respect as we could.

The downsizing was completed on a Friday. The following Monday morning, we arrived early to settle any problems that might arise. It went better than expected because of all the preplanning. Within a week, it was business as usual.

Lessons Learned
I wish I could say that was the only downsizing I’ve had to conduct. Unfortunately, it’s not. Here are 10 valuable lessons my experiences have taught me:

  1. You have to do what is needed in order to save the rest of the jobs.
  2. You can never do too much planning.
  3. But it needs to be done swiftly and at one time.
  4. It is never easy to do.
  5. It is always emotional.
  6. You have to get everyone to buy in to the program.
  7. Employees always sense when things are going to happen, good or bad, before they happen.
  8. There will always be problems to work out.
  9. You are dealing with people and always have to put yourself in their shoes and treat them with respect.
  10. It never gets easier, but the first time is surely the toughest.

Larry Putterman, a longtime family-business owner and leader, is a family-business consultant specializing in next-stage growth and competitive advantage strategies. A board member, serial entrepreneur, and former CEO, he tweets at @LarryPutterman and can be found at