How to lead through an economic downturn

As the global economic picture continues to darken, managers should start to prepare their teams for the worst. Engineering leadership coach Lena Reinhard has some concrete steps you can take to prepare for an economic downturn.

For many of the teams that I hear from, the news just keeps getting worse and worse. The combination of growing recession fears, the cost of living crisis, and big layoffs at global tech companies has left many engineers and their managers concerned about the future.

Whether your company is planning to make layoffs or not, it’s time to adapt. The details of how will differ depending on which role, company, and business sector you’re in, but managing during an economic downturn means radically changing the way that you and your team operates.

Principles for leading through uncertainty

Many of us have spent the last several years focused on high growth and scalability. That’s a fundamentally different way of building and running teams than what’s needed right now.

Leading during economic downturns is all about efficiency: What people, budget, time, and engineering approaches can we use to achieve our plans at as low a cost as possible? That’s why now is the time to deliberately shift the way you think to help your team and company weather the changing conditions.

Use the following principles to adapt your thinking and the way you operate:

• Prepare for times of high change: This is a time of high uncertainty and will be for a while. Help your team deal with a higher amount of change and ambiguity than they may be used to, and help your company manage the risks that it entails.
• Plan for a sustained downturn: You don’t know how long this downturn will last. Ask your boss about your company’s assumptions and planning horizons. Typically, I’d consider being in the operational mode for a downturn of one to two years, but some business sectors and the overall economy may take longer to recover.
• Be nimble and adaptable: Now is not the time for big spending, big new projects, long-term contract renewals, and risky investments. Make deliverables as small as possible so you’re ready to adapt quickly if plans change.
• Center strategy: Focus work on high-impact investments that help your company reach its goals; which may now change faster than you’re used to.
• Be mindful of cost: Increase runway and make the most of all investments.
• Ensure high visibility: Know what’s going on in the business around you and in your team, and how you’re progressing towards your goals, so you can learn and adapt quickly.
• Take the initiative to work better with your team in these new circumstances.

Start by applying these principles in four key areas: Keeping your team focused, finding improvement opportunities, making delivery more nimble, and creating visibility for your boss and stakeholders.

Keep your team in the loop

Your team is hearing the news also, and they will have questions – even if they don’t raise them with you. Help your team understand what’s going on in the business and how it may impact them.

Translate news for your team. Frequently speak about what’s going on in the world, what it means for the company, what this means for your team, and the impact for everyone individually. If you’re unsure about this yourself, speak with your manager and pass on what you can!

Share with your team starting with something like: “In case you didn’t hear it, there were layoffs at company x last week. I don’t have any specific news about our company, but wanted to check what’s come up for you.” Always include a disclaimer to let people know if you’re going to share anything that impacts them. Layoffs aren’t a topic to build suspense around.

Communicate context (at least!) every week. Send a weekly update to your team to keep your teammates in the loop. Include business information, conversations you’re involved in, and updates on world events.

Be extra mindful with your words! Economic downturns also mean that people are extra sensitive, so avoid ambiguous information. Before you send out messages to your team, re-read them and ask yourself: What could make my coworkers feel concerned or panicked? What’s unclear or vague? Avoid sentences that are easily misunderstood like “currently we’re not planning any layoffs”.

Keep your team connected with your strategy. Help your team focus on what’s important by talking about strategy. In planning or retrospectives with them, discuss questions like:

• What business problem are we trying to solve?
• How will this move us toward our strategy?
• What are we not doing?

Share this strategy cheat sheet with your team to help them think more strategically and to keep track of how world events may impact your company.

Invest in your teammates’ growth. Development budgets are often the first to be struck during an economic downturn. If that’s happening at your company, it doesn’t mean you have to stop investing in your teammates’ skills and growth. Work with them to find creative ways to help them grow such as:

• Attending free online events like conferences and meetups together
• Starting an internal mentoring program in your domain or department
• Hosting talks, group discussion sessions, or fireside chats
• Running knowledge sharing sessions and demos

Find improvement opportunities

Run a review of your team to understand where you’re at and where you can improve. The goal of this exercise is to get a clear sense of what you can do to put your team in the best shape possible, and where you can optimize for a sustainable setup. Gather information in areas such as:

• Making and spending money. As Mike Julian from Duckbill Group writes, “Cost management is primarily an engineering problem, not a financial problem.” Now is the time to understand what your engineering team can do to decrease costs.
  • How exactly does your business make money? Where does it spend a lot of money?
  • How is your team contributing to that spending? What do our services cost the business? Consider further cost such as software, tools, and equipment: Where can we cut back spending because we’re not using them? What technical investments can we make to decrease cost?
  • Which areas can we invest in now in favor of longer-term cost reductions, improvements, and sustainability? What can we automate?
• Capabilities: Where can we distribute knowledge better on the team? What information and knowledge are currently centralized that everyone can be looped in on? Where can we invest in our staff to broaden our capabilities?
• Strategy: How useful is my team’s strategy given the new market conditions? Ask your manager about changes to the corporate strategy.
• Goals and investments: Are our goals still accurate? Or do we need to shift what we spend our time on? Is everything that my team is investing in still critical?
• Toil: What work are we doing that, if nothing changes, we have to do again in a month or a year? How can we eliminate this work?
• Risks: Given what I know about the economic situation, what risks do I see in my team? How can I address them?
• Enablement: What can we do to support other teams and enable them? This could include aspects like decreasing dependencies with other teams to reduce collaboration overhead. It could also entail improving internal tooling and developer experience.
• Staffing: Review if your team is staffed appropriately, with the right number of people as well as the right skills and experience levels. This is an important part of being prepared.

Once you’ve gathered this information, prepare and discuss it with your boss:

• Contextualize your intentions: “I gathered the information to make sure my team is adapting well to the changes in the economic environment”
• The areas you reviewed
• Your 3-4 most important findings
• The next steps you’d suggest taking
• What you need from your boss
• Any open questions you have for them

Once you and your boss are on the same page, start prioritizing the investments you need to make on your team. Work with your team to help them be prepared.

Make delivery more nimble

Becoming more nimble means making deliverables smaller and more frequent, so you and your team can limit the risks you’re taking and change course quickly if needed. A big part of this is also making sure you have the right priorities and visibility in place, so you know where you’re going and can adjust quickly.

Work closely with your team’s partners. Collaborate more than ever with your product counterpart, platform, or product teams: Make sure they understand the impact of the economic situation on your team, and partner on all changes. The better you work together, the more you’ll be able to achieve.

Make deliverables smaller. Avoid big projects, and run experiments wherever possible.

Limit work in progress to focus and agree on what you’re not doing. This focus allows teams to get results much more quickly than with lots of in-progress work.

Get good visibility. Ask yourself: What do I need to know every week to make confident statements about how my team is doing? Avoid the temptation to measure everything, but start with 2-3 key metrics that you actually use yourself, and that you discuss with your team. For any metric that you use, put a counter metric in place to optimize for the right things: Set a goal for 99.999% availability and reaching more customers; decrease cycle time and maintain quality.

Give your boss and stakeholders the visibility they need

Higher uncertainty requires higher visibility for the business, so keep your boss and stakeholders in the loop.

• Push information. Share information with them on a regular basis; doing so unprompted and at a high frequency such as weekly helps you manage their expectations, and helps your partners manage risks. You can use a template like this one for regular updates or a format like 5-15. Make sure to include:
  • Risks: What are our current risks? How are we managing these?
  • Goals and projections: How are we trending towards our goals? How confident are we that we’ll accomplish these goals? What do we not know currently, and what are we doing to find out? What’s changed compared to our initial plans?
  • Updates on improvements in your team: Keep your boss in the loop on your progress regarding the improvement areas that you are working on with your team.
• Pull information. Don’t count on your boss and stakeholders giving you all the information you need. Some areas to ask them about on a regular basis are:
  • Strategy: What’s changed about our strategy? What problems and risks are your boss and stakeholders thinking about? What are they hearing from customers and investors?
  • Context: What discussions are taking place in the broader business?

Leading in an economic downturn is challenging for you and for your teams. Applying the principles outlined here will help you change the way you think and operate, and will help you be the leader that your business and your team needs during this time of uncertainty.