I have nothing but respect for my fellow RB posters Shannon and Julian of Excler8ion, but the subhed of their recent post on Jobster's ongoing evolution left me with a bad feeling in my stomach. Discussing lightly-sourced rumors of possible layoffs, they write:
Will [Jobster CEO Jason] Goldberg trade people for short term profitability?
From my newspaper days I recall an old dark joke among copy editors that goes, "You know how to turn a front-page story headlined '20,000 killed in earthquake' into a one-paragraph back-pager? Add the words 'In Bangladesh' to the title." There's a parallel in the business section of the paper, where adding the words "short term" can turn the good news of profits into another story about how short-sighted managers are running the company into the ground.
The first problem I have with this is that what constitutes "short term" is in the eye of the beholder. With 145 employees in a high-skilled business in a high-cost area, Jobster's annual burn rates could easily hit the $15-$20 million range in payroll alone. Until you've sat down and gone through the P&L's and the revenue roll-forwards until your eyes start to bleed, it's hard to realize how quickly you can chew through $50 million and not even get your T-shirt.
In last year's Berkshire Hathaway annual report, Warren Buffet wrote (PDF),
The hard fact is that I have cost you a lot of money by not moving immediately to close down Gen Re’s trading operation... Rather than address the situation head on, however, I wasted several years while we attempted to sell the operation.
So I failed in my attempt to exit painlessly, and in the meantime more trades were put on the books. Fault me for dithering. (Charlie calls it thumb-sucking.) When a problem exists, whether in personnel or in business operations, the time to act is now
The tagline of Jeff Hunter, one of my favorite bloggers, is that "talent is more valuable than capital." It's a great line, and he makes a lot of good points about the changing relationship between the two, but the fact remains that if employees are the brain of a business, cash is the blood, and when you're in burn mode, it's either cash or it's nothing.
While people are shouting about "Bubble 2.0" at news like this, the preeminent reason why Bubble 1.0 occurred was that so many Dot Com 1.0 startups was to wait until they had burned through so much of their funding that their only choice was a fire-sale acquisition or even total liquidation. Many if not most were full of good, incredibly hard-working people and interesting ideas. None of them sat down and planned on going out in a blaze of glory. Everyone thinks they'll be the one oil tanker that manages to turn like a rowboat, that we just need one more quarter for the new strategy to work its way through the pipeline. History, however, suggests that it is wise to be skeptical when a man who has dug his way into a hole tells you he is going to dig his way out. By making the difficult decision to cut back sooner rather than later, management conserves resources to fight and grow another day.
The second big problem I have is that there is no small sense in public discussions of the issue that it is more socially responsible for companies to hang onto people until the final straw. In this case especially, such thinking is rank and sentimental mush. Jobster's workforce is full of talented people and if any of them are let go, it will be into a market full of companies eager to find people just like them, while a year or two into a flat or bear market, even good people may go begging for many months as they did not that long ago. I know many people who in hindsight were glad their dot-com folded in 1999 and not 2001.
And for real social responsibility, we have an excellent case-study in the form of two of the pillars of America's Generals, GE and GM. The troubles of the latter are now well-known, with the most dire talk being what a total default on GM's part would do to the millions of retirees whose pensions would go up in smoke overnight. So large are GM's underfunded pension obligations that some believe the crisis could rival the 80s Savings and Loan debacle for economic havoc.
In percentage terms, GM has bled off small bits of its workforce here and there over more than a decade. "Neutron Jack" Welch on the other hand earned his name by slashing GE's payroll by over 100,000 employees in justfour years, since which GE has grown enormously in revenue, profit, and potential. So much so that GE's pension system is today overfunded by billions of dollars. While pension-underfunding is a scandal in its own right, the problem is made intractable by the lack of corporate profits with which to reverse the condition.
No one, senior managers least of all, question the pain that layoffs always entail, but the alternative to "short-term profitability" is often long-term failure.
