Cut Cruel But Never Cruel Enough

"‘Everyone needs to take responsibility,’ I warned. ‘We’re not going to survive unless we make tough decisions.’ But although every member of the senior management team knew that job-cuts were essential, they naturally shrank back from making them in their particular area. Over the next few days they would come to me with proposals for cuts, and repeatedly I would send them back again and again to cut further. I knew that I had to be tough for them — that I had to bear some of the load of their guilt. But there was no one I could turn to for comfort myself, no one who had been through this situation and could tell me how far it was really necessary to go. I knew I had to be cruel to be kind, but only much later would I discover that I had not been nearly cruel enough. It is one of the hardest things for an insider to judge the degree of such cuts. The likelihood is that unless he is by nature heartless, he will always err on the side of leniency. Just as I was pushing my manage- ment team to cut, cut, cut, I needed a powerful chairman with the necessary distance from the situation who could push me. It was a role that a more experienced board of directors might have fulfilled, but mine, I knew, would simply accept whatever I recommended. By far the toughest decision was Boom. While most departments"

"Three days later, on Monday, 17 January, we delivered our estimated cost reductions to the board. Over the next year our proposed cutbacks would save us $27 million. In total, 131 staff would lose their jobs. Besides Boom, most of the job cuts would be made by scaling down the customer service teams and streamlining the local offices. The figure represented over a quarter of boo.com’s total workforce. The meeting went better than we could have expected. The board approved our restructuring plan and also J.P. Morgan’s revised funding strategy: the bank now planned to raise $50 million from new and existing shareholders and then go straight to an IPO in the second quarter. We had come through yet another crisis, but it was impossible to feel happy. As the meeting broke up and our board members rushed off to catch their planes, I thought: This is the day that we lost our innocence."

"Tony Coleman, who looked like an undertaker in his dark suit and needed only a top hat to complete the picture, started the proceedings promptly at 10 a.m. He had staggered the meetings over the length of the morning so that he could "acum be present at as many of them as possible. With a mixture of guilt and relief, I watched as Kajsa walked briskly off to dismiss her staff. They had been gathered into three rooms, according to their different job descriptions. With Tony Coleman at her heels, she walked into the first room, fired the people there, walked into the next room, fired the people there, and then into the third. It was all over in about fifteen minutes. Shocked, angry and ashen-faced, the Boom team and other mem- bers of Kajsa’s staff trickled out of the building. Kate Alvarez was in tears. The Gurkhas had been detailed to watch over them to make sure that they left the premises straight away and didn’t take any com- pany property. It was all very corporate, very correct and very brutal. Thad only two staff of my own — Esther Galan and Paul Kanareck —and didn’t personally have to dismiss anyone, but as CEO I felt the greatest responsibility for all the sackings, and sitting at my desk quietly while my management team had to take part in the blood- letting made me feel even more ashamed.,Tony Coleman, who organized the day, may have become the focus of people’s anger, but he was only carrying out my orders."

"Once we had finished the letter, Edward, Jay and I stayed on to discuss exactly what our restructuring ‘scenario’ would entail. At some point a banker from J.P. Morgan’s New York office, Alexander Fuchs, who had been involved in putting together the private placement memorandum, stopped by and stayed most of the evening. This was the nearest bankers came to being doctors. I half expected him to be wearing a stethoscope. “You’ve got to get your burn rate right down,’ he advised, ‘and cut your staff by 50 per cent. This is your last chance to get your cost structure in shape.’ His point was that because of the five months’ delay in launching our site, we had a very high burn rate which our early revenues did not support. As it would take some time to ramp up revenues, it was vital in the interim to address this imbalance if we were to avoid scaring investors off."