Momentum Podcast: 660
When it is Time to Cut
by Alex Charfen
In 2011, we had the 21st fastest growing company in the country. We were on in 500 list then and in 2012 and 13. We even won best places to work all three years. We did so well, we sold ourselves out of an opportunity and ended up having to cut the size of our company and do layoffs.
So many companies right now are in the same situation. Business has shifted, numbers have gone down, and it is time to make a cuts. This is one of the most difficult things we go through as entrepreneurs, and it's also one of those things we rarely talk about.
Here's how we did it, and some of the big mistakes we made that you don't have to.
Full Audio Transcript
This is The Momentum Podcast.
There are so many companies in this situation right now. And even if you're not here now, there may come a point in the future where this happens. Where your business is growing, your team is growing, you're reaching outcomes, and then all of a sudden, business shifts, numbers go down, and it's time to make cuts. It's one of the most difficult things entrepreneurs go through, and it's one of the things that's rarely talked about.
In this episode of The Momentum Podcast, Alex is going to tell the story of going through this exact situation, some of the biggest mistakes he made, and how to do it the right way.
I'm Alex Charfen, and this is The Momentum Podcast, made for empire builders, game changers, trailblazers, shot takers, record breakers, world makers, and creators of all kinds. Those among us who can't turn it off, and don't know why anyone would want to. We challenge complacency, destroy apathy, and we are obsessed with creating momentum so we can roll over bureaucracy and make our greatest contribution.
Sure, we pay attention to their rules, but only so that we can bend them, break them, then rewrite them around our own will. We don't accept our destiny, we define it. We don't understand defeat because you only lose if you stop, and we don't know how. While the rest of the world strives for average and clings desperately to the status quo, we are the minority, the few who are willing to hallucinate there could be a better future. And instead of just daydreaming of what could be, we endure the vulnerability and exposure it takes to make it real. We are the evolutionary hunters, clearly the most important people in the world because entrepreneurs are the only source of consistent, positive human evolution, and we always will be.
The subject I'm sharing this morning is actually a really difficult one. It's you have a business, and it's doing well, and then the situation changes and you end up in a place where you have to cut personnel. You have to cut people, you have to cut what you're doing, you have to make adjustments. It is one of the most difficult things that you can do as an entrepreneur. So here's one of the things that I feel like is my responsibility as an entrepreneur who's actually had some success. I think it's my responsibility for myself, for my team, for the people that I lead, to go back through those "successful periods of time" and say, "What could I have done better? What could I have done differently? How could I have improved this situation for all of us?" I often think back to the time period where I had to start cutting people in our CDP company.
Let me give you a little basis here, for where we were and what was going on so you can understand what I'm talking about. Katie and I, in 2007, went bankrupt. We owned a bunch of real estate companies in Florida, we ended up going bankrupt. We started this company called the Distressed Property Institute, we launched this product called the Certified Distressed Property Expert. It was a long shot. We were bankrupt. Here we were, we had this slogan, "Solving the foreclosure crisis one homeowner at a time." When I made that slogan, Katie and I were literally bankrupt, we were living in a rented townhouse. We had no savings, our money was gone because we had gone bankrupt. It was one of the hardest times of my life.
CDP was amazing, and here's what happened. We started it in 2007, in 2008 it took off. By 2009, we had a four person team here in Austin. By the end of 2009, we had about a 40 person team here in Austin, the company absolutely exploded. It went from $127,000 in 2007, 500,000 in 2008, about seven million in 2009, 10 million in 2010. Sorry, I'm confusing the numbers. We hit nine million in 2011. Anyway, the growth curve was insane, and hiring people was crazy. It was amazing. In fact, I wrote down some notes here. In 2011, '12, and '13, we were number 21, 187, and then 4000 and something on the Inc. 5000 list of the fastest growing companies in the country, so we were on it three years in a row. Each of those years, we won one of the Best Places to Work awards here in Texas, and in the US. It was an amazing time.
But then, here's was happened in 2014. We started dramatically improving the market. In fact, we started with this motto, "Solving the foreclosure crisis one homeowner at a time." Well in 2013, Laurie Maggiano, who was a director at the US Treasury, came to our office and on a broadcast actually said, "You guys have pulled forward the foreclosure crisis by five to seven years." I remember thinking, "Wow, that's amazing. We did it, we pulled this off. Our tiny little team here made this happen." And then, at the same time I had this voice say, "Oh my God, we're screwed. We're in so much trouble if we pulled forward the foreclosure crisis."
At that time, in 2013, we had almost 100 people here in Austin, in person. We probably had 30 contractors somewhere around the country, or in the world. We had a $14 million business, and a huge office space, and all kinds of other stuff. And that day, listening to Laurie, I knew we were either going to have to change our strategy significantly to meet the volume we were already doing or things were going to go down, and that's what happened.
You know, as soon as the foreclosure crisis started improving, real estate agents didn't want to learn how to do short sales anymore, they didn't really need to, and so our products started selling a lot less, which was super challenging. We had a 90 person team, and I remember the day, getting to the point where I'm like, "You know what? I need to make major cuts. We have 90 people, I need to cut a huge number of people." I remember sitting down with somebody who was actually transitioning out of our business, his name was Ryan Shuhart. One of the best guys, and best writers, I've ever worked with, just an amazing human being.
Ryan sat down with me in my office, and I remember this conversation we had. He's like, "Alex, can I give you some advice?" I could tell he was tentative, he was afraid to give me the advice, or maybe he didn't want to give me the advice. I remember Ryan saying, "Alex, you should turn this place into ..." I don't know if he said, or if this other guy Jim Cochran, I had two conversations within the same week. Where Ryan was pushing me, he's like, "You should lay everybody off, pull as much money as you can out of this place. You don't need all these people anymore, go down to a skeleton crew and get as much money as you can, and move forward."
And then I sat down with Jim Cochran, and Jim was our HR person, another amazing human being. Jim was like, "Alex, you need to turn this place into a flying gas can." I'm like, "What is a flying gas can?" He said, "In the military, when they fly bombers across the ocean and they need to be as light as possible, they strip everything out, they keep only the essentials, only literally what's going to make the plane fly, and then it can make it to where it's going, and drop its bombs and get back. You need to turn this place into a flying gas can." He's like, "Get rid of as many people as you can, cut to the bone, cut as much as you possibly can. You'll figure out delivery, cut hard."
I remember, as Jim and Ryan were talking, in the back of my mind there was this alternative argument already fighting them and saying, "No, but we have such an amazing team, and all these people love working together, and I feel responsible. I bet we can turn it around. I bet we can figure something out, that we can replace this revenue." I didn't say that out loud to either one of them, I didn't have the courage to because their arguments were so clear, and their arguments were right. Now, in retrospect, I know the reason I didn't have a clear argument back is because there really wasn't one.
As a result, I didn't listen to either one of them. I mean, I listened, I didn't act on the advice either one of them gave me. And as a result, we went through a slow, painful, over and over again cutting a group of people immediately, and then trying to survive for a few months. And then, cutting another group of people and trying to survive for a few months, and cutting another group of people. You know where we ended up? We ended up at the flying gas can because we didn't have a clear business model, or a clear business plan, to replace the business that we knew we were going to use. The pressure of trying to keep everybody in the building, having way too many resources, having under utilized people at one point, all of that pressure, I'm convince, made it so we couldn't figure things out. It was horrible, it was incredibly challenging.
So, these days when I talk to somebody whose in the place where they're like, "I think I need to cut," we have a quick conversation about it. And, if we verify where they need to cut, here's what you should do is cut hard. Follow Jim Cochran's and Ryan Shuhart's advice that I didn't follow, and now in retrospect, it is so clear that I should have let go of as many people as I possibly could. Cut down to only the team we actually needed, and we would have probably figured things out.
Here's why. When you have the right amount of resources, when you have the right amount of people, when everybody's fully utilized, you're efficient, you're effective, your team's in momentum. What I was trying to do was keep people on as work went away, and as the need for them went away, and we ended up with this hodgepodge of some people doing the right things, some people being there, some people not really having an objective, some people filling in spaces, and it was incredibly challenging. It's one of those decisions that you make ... We make a lot of decisions before we have the experience to get it right.
Well, now I know what I should have done was cut down to the point where there was absolutely no distraction, no extra people, no extra effort, nothing that we didn't absolutely need at that time, and our business would have gone forward. I know it would have. Now I know what I should have done is what we eventually did, we eventually cut down to only what we needed. We eventually, actually, just shut the entire company down and started a new one in 2017.
It was interesting, it was 10 years from starting to ending, and we shut it down and we started a new company, and it was just me, Katie, and one person. Since 2017, we've gone from me, Katie, and one person to now, I think we're 15 or 16, or 14 or 15. I always forget because we've had people out on our huddle. We might be 16. We're now at about 2.3 or 2.4 million of recurring revenue, so that's revenue that's coming in every month, most of it baSed on contracts and we're not reselling people all the time. This morning on our huddle, we have 230 member companies that we are helping around the world, to grow and scale, and I feel like we are right on the cusp of another massive growth spurt where we're going to go from three to multiple millions, and even higher.
The reason that all of that happened was because I wasn't feeling the pressure and noise of resources I didn't need, and people that were under utilized, and trying to make something happen to save things, to turn things around. All of those thought processes, in retrospect, were damaging, and you know, let's get real. I didn't think I was going to get this vulnerable on the podcast, but it's going here. It was my ego.
You want to know, really, why all that stuff happened, and why I made the wrong decisions? It was ego. When Ryan and Jim were saying, "Alex, you should make this place a flying gas can, you should cut it down all the way," you know what I was saying in my head? "I bet I can save it. I bet I can figure it out. I bet I can get around this, I bet I'm better than the situation, and I bet I'm better than this massive shift in the market that's going on." Oh, it's embarrassing to even say I thought that way so recently, but I did.
These days, when I'm talking to entrepreneurs who are looking to cut, I share this story, and I share this feeling with them because if you've determined you need to cut, here's my advice. Cut as far as you possibly can, and then a little further, because your ego's not going to save you in this situation. Here's the issue that I ended up with, and I think it's similar for every entrepreneur. You can use your ego to try and make things better, you can try and rely on your ego to pull you out of the issue, but the challenge is your ego is no match for the pressure and noise of under utilized resources, people you don't need, trying to make things happen under massive pressure. It's just not going to work. Or, it probably won't work, or it most likely won't work.
Or, you know what? I hope it doesn't work because I don't want your ego to get you into even more trouble, where you make some progress and then you think you're on the right path, and really, you look at the numbers and you need to cut. If you find yourself in this situation, I want you to know this is one of the hardest, hardest situations you'll be in as an entrepreneur. And if you find yourself needing to cut, here's what I would suggest. How far can you? That's the question. How far can you cut, without hurting relationships that you have with clients, without damaging delivery? How small can you possibly make the team that you're working with, and how low can you get your expenses? So that you can remove all the pressure and noise you possibly can from yourself, so that you can turn around and actually turn things around, and move things forward, and make it easier on yourself.
You know, as entrepreneurs we write the rules for the game that we play, and often times we make the rules way harder than they need to be, so don't. If you're in a situation where you need to cut, get your ego out of the way, make the massive cuts, bring the noise down as far as you possibly can, and what you'll find is you have a lot more currencies to show up with. You have a lot more time, and effort, and energy, and focus, and even money to be able to turn things around, make things happen. And when you take the pressure off yourself ...
There's two ways to get into momentum, I always tell people this. You can do all the work it takes to get up into momentum, and in that situation I was in, I was trying to do all the work it takes to get back into momentum with the pressure and noise of expenses, and a team, and under utilized people, and all kinds of other stuff. The other way to get into momentum, just like if you were in a boat that had a bunch of weight or a ballast on it, before you hit go drop as much as you can out of the side and you'll go that much faster. That would be my suggestion. Cut as hard as you possibly can, and your momentum is almost guaranteed. If you're looking for help growing your business, and you want to understand a system and a structure that can help you make better decisions, and make decisions the right way, I've worked on one for over 20 years, we're helping hundreds of companies around the world to scale quickly and grow predictably. Go to billionairecode.com, watch a quick presentation from me, answer a few questions from my team, and let's jump on a call and see if we can help you. Billionairecode.com, and thanks for being here today.