Would you rather be laid off with severance or receive a reduced work schedule and a reduction in pay?
Most would likely choose the reduced work and pay, but is that always the smartest decision?
On today’s episode, Kinsley and Quinn dissect the recent restructure (aka: headcount reduction) of Nectar and compare it to the Sequoia Capital strategy: in the face of downward trends, react hard and fast and plan to recoupe slowly. Is the Sequoia approach better for long term growth or does it signal the inevitable for which there is no return?
Plus, what does the future hold for Nectar?
FULL TRANSCRIPT
Mark Kinsley
Sequoia Capital released a report to its founders anchored around a quote from Charles Darwin. It’s not the strongest of the species that survives. But the one most responsive to change our nectars headcount cuts and early response to change. And if so, how can you prepare the Dos Marcos show begins right now.
Mark Kinsley
Yeah, I heard the news yet, residents of the parent company of nectar mattress made headcount cuts at the executive level. And we started thinking about this as an early indication of other change in the pipeline. So we came across this report from Sequoia Capital to its founders talking about adaptability, and how they can potentially prepare for a further downturn in the economy. We know the issues at play inflationary environment, we have a war, we have gas prices that are spiking, we have major supply chain issues that still continue to shake themselves out, we have a labour shortage. And now you know, if you want to go buy a new house, you know, 5%, come on up to 6% is going to be the new normal. So the the quote in the Sequoia Capital debt, Quinn was all about adaptability. So if you’re in a position of leadership, or your founder of a company, they use the quote from Charles Darwin, it is not the strongest of the species that survives nor the most intelligent, but the one most responsive to change. And they sometimes call that survival of the quickest. And they had this great chart that basically outlined, you know, a company that waited too long to make any type of change in the stair step decline in revenue and eventual drop off, versus a company that made an early change and had a major reduction in revenue, maybe a reduction in staff, and then an incremental growth path that got them back to a neutral period of time. When you think about acting and reacting quickly survival of the quickest as a concept, where does your head go? It
Mark Quinn
goes to a place of caution. Because the the I’m about speed and being able to react to things in the market, I think that’s important, no question about it. The problem with it is if you act too quickly, that could also be a problem, right. And so if there’s a fluctuation in the market, if something’s happening, I’ve seen people cut, I’ve seen people add capacity, all, you know, betting on the calm or anticipating a bigger issue. And they get too far in front of it. And it’s a problem. So the timing is critical, obviously. But for next year to try and be in front of it, I think, you know, some of the the inputs they’re thinking about Mark are, okay, so to your point, like there is a war in Ukraine, that’s not going to go away, you’ve got gas prices, don’t hear anything about you know, the solution for that, at least I haven’t inflation haven’t heard anyone really, you know, posting up any solutions for any of that. So, from their perspective, they’re like, Yeah, this isn’t gonna, like reconcile itself anytime soon. So I think from their perspective, acting quickly, as you know, probably just fine because the market conditions are such that support that kind of move. And I think a lot of people are thinking that Kinsley, like, you know, it’s, it’s time to start looking at it. Unfortunately, that’s the case, but you got to be you gotta be strong in your move as a leader, you got to be definitive, and you got to do what’s right. And, you know, the hard part of it, I think, Mark is that a lot of people do stuff like that, and they’re crushed and it’s very difficult because it’s people you know, we know people that had to that were let go at resident Bob uncle being one I mean, the furniture today release on him or on the nectar, you know, cutting people almost sounded like a bob, my uncle shout out, Hey, he’s open. He needs the job kind of thing. And Bob knows a lot of people I don’t know that he probably needed that. But anyway, I thought it was funny how that read. But, you know, there are people that we know, but still a company has a responsibility to the rest of the people inside the organisation. So when they have to reconcile headcount, you know, it’s a tough decision, but they’re also trying to do it to benefit the greater good, so it’s tough, man. It’s tough. What where’s your head with it? Like? Do you think they did it too quick? Do you think this is you know, them just being in front and other companies are going to be following like, what are your thoughts
Mark Kinsley
there There’s history, we’ve been through some major economic crashes. And if you look back at 2008, Sequoia at least pointed out that the companies that cut and were efficient ended up better off. And so if you do take a longer time, Ryan timeline horizon, for this recovery to happen, it seems that it is going to take quite a bit of time, it’s not going to be that V recovery that we saw whenever the pandemic got the big injection of cash that went into went into people’s bank accounts. And there were a bunch of other factors beyond that. But there is history here. I mean, I look, you think back to 2008, you think about the recessionary environment in the climate that we’re in there, and companies had to cut, I remember, a friend of mine, ran a business and had about 70 employees, and then went to a four day workweek just so they could keep all their employees on board. They said, if we make it through this, and we will, we’re going to be stronger than we than any of our competitors. And since then they’ve gone on to have an incredible business. And so that was certainly true, while some of their competitors, laid people off, you know, lost headcount didn’t have you know, that that institutional knowledge that you get with longer term workers. So So I think there are ways to cut and maybe that’s the exercise that you could do, it’s just something to think about, do the exercise, your projects, your r&d, your marketing, all your expenses. And if you look at that, and you’re ready to do it within 30 days, so you can avoid any type of death spiral, then at least you’ve done the exercise on paper. And you’re not having to be reactionary, because, you know, if you believe some of the some of the charts that Sequoia put out, for example, it’s like I said, people who had that big dip in revenue or business because they did make cuts, were able to survive that longer term horizon and get the recovery. Whereas if you do wait too long, and if you get into a cash flow storm, that’s really difficult to get out of. Now you can take on debt, and there are some other levers that you can pull. But I would say if I was in this situation, I wouldn’t want to be too optimistic, just because it does seem that the environment does not lend itself to quick recovery. So I would want to be doing that exercise on paper. And then when you have, you know, six months of cash left, your focus is going to become incredible. And so go ahead and get that focus now, regardless of how much money you have in the bank, so that you don’t have to be reacting to that. And then look, when you’re in that position, whether you have to make those cuts or not. You’ve got your focus, you understand your cash cycle. You can look, there’s a quote by racecar driver says, You cannot take overtake 15 cars in sunny weather, but you can do it when it’s raining. And so when it starts raining, if you’re more prepared, you’re not just going to survive, you’re going to win. And I think that’s that’s how I look at this environment. I’m like, How can you not just survive, but how can you win? And you got to embrace reality whenever it hits you.
Mark Quinn
And I think that’s bullshit. Like I’m not passing 15 cars in the rain. Come on. Are you passing 15 cars in the rain? Are you driving a Formula One car and you’re gonna like go out and pass people on the turn, and you got slicks on and it’s raining outside and you’re gonna go right in the wall. Kinsley
Mark Kinsley
hey, here’s what happens. If you’re, it’s, it’s the prepared person that wins in a fight. So, if I’m getting prepared now, before the rain hits, I’m saying, Hey, guys, put some water on the track, make it rain and get the fire hose out here. I want to be the best driver in the rain possible. So that on that rainy day, I can get that chequered flag. That’s what we’re doing right now. I think people are saying spray some water on the tracks, let me drive in it. That way I can practice for what it’s going to be like when these conditions are really bad. So the one who’s best prepared is going to win that fight. And I think preparation right now and confronting reality is going to prepare your mind prepare your team prepare your company. So if you Yeah, if you see it coming. I don’t think it’s a stick your head in the sand moment.
Mark Quinn
No, it’s not. And I think you’re right, I’m just kidding. Like, you know, I’ve been watching that Formula One series on Netflix and there’s one episode where they’re in the rain and this guy like just you know, seriously goes after in the rain and he did take the opportunity to have the right tires on and in the right scenario right and so anyway your right being prepared and strategically thinking through it, like he put his tires his rain tires on at the right time the other guys didn’t. So anyway, enough of that. I think another thing in the downturn like right now, so back to the people and reconciling the people part of it like making sure that you look at where your big rocks are and making sure that you understand where your key result areas are in. Not letting go of resources in those areas. Right. So being strategic in who you’re letting go, obviously. But the other part You know, in a downturn, I think it’s always interesting is I watch people, when things slow down that people who are aggressive Mark who play offence, you get more aggressive with inventory positions with hiring good players that come into the market because other people have let them go, leaning into their marketing and social media strategies, because they know everyone else is going to slow down. Like, I think those are the things that I enjoy watching at times like this, too, because who are the ballers out there who’s gonna really be aggressive when the opportunity presents itself? Stock prices are low, buy heavy, and come out of it looking better, right? And then how it works also.
Mark Kinsley
Yeah, in the Sequoia report, I like how they put preparing your company, they talked a lot about cash flow. So cash and cash flow, but they also talked about some of this concept to create financial degrees of freedom. And so this is a scenario where, hey, take it from the mattress industry, there’s a good, better best. So for example, how do you create financial degrees of freedom, while the best possible scenario earn more customers, Airbnb is an example of that they pivoted to more long term stays during the downturn. So they’re trying to get more people to stay for longer periods of time. And they were very successful with that during the COVID shutdowns in the downturn, because people wanted to get out of their house, but they couldn’t be around other people. So they couldn’t go to these big hotel properties. So that was a financial degree of freedom, freedom for them. Zappos, whenever things went in the candidate 2008, they increased their selection and worked very, very hard on their average order value. So just like you said, taking bigger inventory positions, continuing to have great product, and then whenever somebody does come into the store, trying to get that average order value that that ticket up each and every time. So focusing on that now, other ways to create the financial degrees of freedom, just improve your unit economics, you know, can you reduce, you know, some of your spend in certain areas? can you improve your ROI? Can you get payback, you know, like Zappos did on a customer’s first order, which is very hard, you know, it’s lots of people were looking at lifetime value. And then you get into the excess, like, what is the excess that we can cut. And the thing is, whenever you have constraints, your creativity can flourish. You know, it’s like, if Mickey Mantle didn’t have a fence up, he’d just be hitting balls, 600 feet into the Spring River. But a fence put up allows you to know what’s a homerun. So put those constraints on your team and get as creative as possible. And then you got to got to do a reset, if things start to get real, and you’re facing cuts and businesses starting to suffer. And when I’m when I say that, you got to bring your team back together, remind them of the purpose, the purpose behind your business, why are you here, the change that you make in people’s lives, and you got to be sure that you’re living out that mission that you have as an organisation? And make sure everybody’s playing Moneyball with you. Right? Put everybody on the same team? How do we get more creative? And how do we cut expenses? How do we sell more? How do we increase tickets? All the things we’re talking about doing? Now’s the time to plan for that?
Mark Quinn
Yeah, and, look, I mean, you should have been planning right, a long time ago, probably. I mean, we knew that there was rough water coming for 60 to 90 days. So and I’m sure, you know, people listening to this have been planning. I think it’s just hard Mark, I think the people part of it’s hard. I mean, we’re talking, you know, in this audience, we’re really blessed with a lot of the independent retailers out there who, you know, work hard, and they’re generational businesses. And when I did the stuff with nationwide early on, where I was going city to city, and we were talking about, you know, some of these things, the people side of the business and the challenges of getting people to come work. You know, when you talk to the people that own these companies out there who are in our category, it’s very hard. You know, they’ve got people who aren’t producing, they’ve got people who, you know, maybe they’ve been with him 1520 years, and it just turns out the last year, they haven’t been doing great, or they’re not, like, those are the hardest issues, I think, based on my time with independent retailers that they face. So this is no small thing. And, you know, believe it or not, it’s in your best interest as it is in the employee’s best interest. To do it quickly, if you have to do it. Obviously being direct and and communicate it well internally as well as externally and show them as much respect as you can as they’re exiting but, and then set them up if you can, like help them find the next thing if that’s even possible, right. And so, everything you can do to just know though that sometimes doing that is maybe in the best interest of that person, but definitely in the best interest of the company overall. And that’s almost how you have to look at it because if not it’ll it’ll paralyse you in terms of the negative that it’s going to cause to you and your soul essentially letting go of people you know, and probably care about.
Mark Kinsley
You and I know that if it’s somebody that needs to go, you know, sometimes companies use these type of events as a way to realign, and maybe it’s even not even the person, maybe it’s just the direction of the company, and, and where they’re seeing the most opportunity, I do tend to believe that it’s very hard to cut your way to a better business. I mean, I think it’s still important to focus on your future, you know, get crystal clear on your unique position in your marketplace, what you do better than anybody else. And then put your resources into doing that, you know, sometimes it is a bit of a reset, because you say, We got to get back to what we do best, we got to stop the pursuit of more and start to pursue better. And just just get real with yourselves. And hey, a lot of times, it’s bringing people together to you know, let them use their creative talents and their gifts, and what they bring to the table to get more aggressive with your business before you have to get into the conversations about layoffs, or, or right sizing your workforce. So a lot for you here to chew on. But we definitely want to bring reality to the forefront. It reminds me of you know of a story. And it’s not not a story everybody loves to hear. But it was a story about Admiral James Stockdale, and he was. It’s actually, the story isn’t good, too great if you read that book, but he was the highest ranking US military officer held as a POW in Vietnam, and he was there from 1965 1973 He was tortured over and over again. And he made it out while a lot of people didn’t. And when he was asked about that, he said, who didn’t make it out, he said it was the blind optimist. They were the ones that said I’m going to get out by Christmas, Christmas would come and go and they still weren’t out. So they’d say we’re going to be out by Easter and Easter would come and go and then Thanksgiving. And I want to when he said they died of a broken heart. But he went on to try and tell his fellow prisoners, he told them, we are not getting out by Christmas deal with it. So whenever it comes time to hunker down, you got to get your mind right. And you got to say, good, good. What does this allow us to do? What does this allow us as an organisation to do? So I know that this is more of a heavy time that we’re facing as an industry. But just know that that we’re here for you as a sounding board. Anytime we can connect dots for you. Whether it’s you know, somebody who’s been let go from an organisation, we’ve been having lots of those phone calls, you and I both, we’re here to help in any way we can, because we as an industry need to re emerge stronger and better. And this is a time when we can get back to what we do best, which is I think, and I know you and I both talked about this, making sure we’re positioning the mattress as a wellness item. Health and wellness still matters more than anything to people at a on a global scale. If you don’t have your health, you don’t have anything. And we are positioned to elevate the importance of the products we sell and connect it to health and emotion.
Mark Quinn
In order to add one thing to this before we kind of roll out of this topic mark. And you know, if you’re listening to this, and you’re in jeopardy, or you think you might be take a minute and really think about like your profile on LinkedIn. Right? Because guys, there’s a lot of really cool conversations happening on LinkedIn, there’s a lot of really good conversations happening on Facebook. LinkedIn, fam has a great page in both Facebook and on LinkedIn. And it’s okay to go on some of these threads and make comments and, you know, like, comment on other people’s comments and encourage them and it’s okay to have a question or not agree with everything, but put yourself out there a little bit, build your network, and make sure your own personal brand is healthy. And if you you know if you if you get to a point where you need a job, but throughout the last six months, you’ve never like stay connected with people and reached out and encourage them and supported them. And then by the time you need something, you’re going to be cold calling somebody going, Hey, boy, I miss talking to you for a year Hey, by the way, I need your help. I need it like, you know, like be good at staying connected to people because at the end of the day, it’s what it’s all about. It’s about that connection to people and and when the time comes and you need that help. If you’ve been maintaining those relationships and feeding those relationships, you’re going to be in a hell of a lot better situation than those that are not so just a thought for you. Go on the fans LinkedIn page and engage we’d love to hear from you.
Mark Kinsley
Yeah, it’s easy to get to we’ve always got it linked up on MDOT news. And you can also text us your thoughts so you could send us an email. How are you thinking about the next 612 18 months? How are you preparing your business? What are you doing with your people? How are you thinking about your inventory, your merchandising, holler at US text us we got a lot of different ways you can get a hold of us and make sure you’re subscribed to the dose Marco show and the all new fam marketing podcast with myself and Adrian woods, which is out there rolling and we also have the new fam marketing actually, it’s called shake your marketing moneymaker, a newsletter that’s coming out every Friday to give you tips and ideas to keep your creative saw sharpened Quinn until next time looking good in that brand new shirt man.
Mark Quinn
Thank you. Hey, the colour in your face I like it. Is that going to turn brown at some point do you think
Mark Quinn
it smacked you write on the forehead.
Mark Kinsley
Oh man.
Mark Quinn
I’m worried about you got to put some lotion and so I got it to the I got too much like sun but
Mark Kinsley
you just use them you just look great. You look like you’ve been hanging out in the islands I looked like I you know the fair skinned Irishman that walked outside and got one glimpse of the sun and turned it into a red popsicle.
Mark Quinn
I love it. Well hopefully you didn’t get too much sun over the last week and if you did put some of that moisturiser on guys. We love all of you that are listening. We are nothing unless we have this audience you’re part of that you’re part of our family. God bless. Have a great week and no matter where you are listening to us on a on a treadmill, working your butt off sweat and trying to get those pounds off or you’re driving a car. Be safe until next time
