Sometimes Shrinking is the Right Move

"It looks like we're going to have scale down operations. Does this mean we've failed? Is this really just the start of our downward spiral? How should I be thinking about contraction?"

May 27th, 2020   |    By: Wil Schroter

In the early years of my first startup we totally ran out of money. I remember sitting in my apartment staring at the ceiling thinking "how do we possibly recover from this?"

Then I had a (then) silly idea. What if I just took the whole staff down to just a couple of people and we ran "bare-bones" for a while? I recognized it was a big step back, but I was also thinking "I'd rather be alive and breathing than dead and bloated" (the former being a Pearl Jam reference, the latter being a Stone Temple Pilots reference — RIP 90's).

We made the hard decision of letting basically everyone go. We moved the office back to my apartment. We sold off furniture and office equipment. It sucked.

And then something really interesting happened.

All of a sudden, we had "unlimited" runway again. We were profitable. For the first time we could operate without the countdown clock of "days remaining" over our heads. Within a year we would win the largest contract of our lives and go on to build what became a $700 million company — all because we downsized.

Trading Longevity for Size

We tend to think of "expansion" as the only way to grow. But the truth is, what we really need is longevity. We need to be around long enough to do something amazing, even if that longevity comes at the price of contraction.

We assume that the size we are at now is the benchmark for further growth. It's as if we're thinking "If we have fewer people, or less revenue, we're failing!" We're not.

Failing is what happens when we run too fast for too long and go bankrupt. No one ever said we would be able to maintain a specific size forever, and those numbers will only go up — we all made that up in our minds.

The Right Configuration for the Right Time

During boom times maybe it makes sense to boost the staff count and spend heavily on growth. We all seem to understand that because growing is fun, it involves adding people and resources and spending money.

What we're missing is when we assume that will always be the right configuration. Needless to say, during lean times, we need a different configuration for the company. What we need to be asking ourselves is "what is the right configuration for this moment in time?" That's what should determine our true size.

Failure is the Wrong Configuration

When we fail, it's because we didn't account for the proper size and configuration of the company at the time. We probably waited too late to reduce headcount (everyone does), or stayed too optimistic about future prospects (if we weren't optimists, we wouldn't be in this job!).

We need to step back and recognize that "failure" is about not responding properly, not the result of how we respond. It's tough, but that's why we get paid nearly nothing for so long. (wait, what?!")

In Case You Missed It

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How do We Tell Our Staff We’re About to Run Out of Money? The key to communicating with our staff about money is to do it early and to get everyone on the same page.

Overwhelmed (podcast) Startups are often portrayed as a go big or go home affair, and as Founders, it's easy to get caught up chasing monumental goals and forget about the daily actions that will actually get us there.

About the Author

Wil Schroter

Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes BizplanClarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.

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