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Tuesday, Dec. 23, 2008

With 2008 ending with news of non-stop layoffs, I flash back to a meeting in 1983. Grant Tinker, the Chairman of NBC at the time gathered all the programming executives (I was Director of Daytime Development) for a brainstorming session. When he walked in and saw about 25 faces, he shook his head and said “We used to program the entire network with just eight people.” It would be easy for me to say that the place ran better with 25 smart people versus 8, but that wouldn’t necessarily be true.

Today I noticed that Bank of America plans to cut up to 35,000 jobs over the next three years while Sony is sending 8,000 employees home. If you can layoff 35,000 people and still function well or even better, how did the staff size get so large anyway? Does anyone know anymore how many people it takes to effectively run an enterprise?

Of course I understand that making fewer widgets per week can mean a reduced number of widget makers. But, there are other things in play here. One of my least favorite factors that allow smaller staffs is that many larger companies have dragged their customers in as unwitting employees! We’ve all been sent to the web site to place an order rather than having an experienced and comforting voice on the phone taking care of our needs. Beyond a certain point in employee count, a lot of the energy of an enterprise is absorbed internally rather than being directed to outside sales, development and customer handling. That usually means that size is slowing you down.

Small business owners are accustomed to wearing many hats, variations of work clothing and to carrying a substantial load of work. If you want to ask a question to the head of finance, you may be quizzing yourself! If you’d like to talk to the Marketing VP---talk to me. I’ve even met a number of business owners who carry two or three business cards, each with another title. The staff reductions we are seeing at all levels not only reflects that there may be less business activity, I believe that it is also a reality check for companies that have grown like mushrooms after the rain.

The bad news we’ve been hearing lots of has two sides. You’ve probably heard the aphorism “one person’s problem is another’s opportunity.” While getting my car serviced this past weekend, I gave the service manager my full throttle opinion on how they could have handled the customer relationship better. He indicated that his goal of upgrading the quality of staff was actually being supported by this uncertain marketplace. “A couple of dealers in the region are closing” he said “and we can provide a soft landing for the best of their service staffs.”

Small business owners can teach entrepreneurial thinking to big business executives and vice versa. About two years ago I met ex GE chairman Jack Welch when he was promoting his “Winning” book. I used to think that Welch’s policy at GE of pushing the poorest performers out the door on a regular basis was rather harsh. An effective performance appraisal system, he said, relies not only on honest feedback but also on meaningful differentiation among employees. At GE, he put these principles into action by implementing a forced ranking system that divided employees into three distinct segments: the top 20 percent of performers, the middle 70 percent, and the bottom 10 percent. Even though GE's "20-70-10" system—which methodically manages out the bottom 10 percent of employees each year—has always been controversial, Welch emphatically defended it. By thinking sharper, GE grew from $13 billion to $500 billion while Mr. Welch was there. Welch went even further with his opinions about the importance of business enterprises in our society. According to him, companies that develop extraordinary products and services do more than gain market share—they represent the very foundation of society. "Winning companies are the only things that matter—without them, nothing else would work."

So the rounds of layoffs that seem so contrary to the holiday spirit present two sides of the entrepreneurial coin. There is no magic number of employees that is correct for being at the right size. It is really about having a combination of the best people working with teams who are very good at what they do. On the other side, those people who are finding their employment changing are being presented with the motivation and opportunity to try something new that may lead to their economic independence. Many will be shaped into smarter and sharper individuals who are headed for the top 20% group in their new lives. I see the numbers as one excellent idea, one well articulated vision and as many talented people as it takes to grow the enterprise. That said, I do agree with the marketplace that there probably are too many Starbucks!


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