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A Downturn Can Actually Be a Good Time to Cultivate Talent. Here's Why. The knee-jerk reaction in a downturn may be layoffs, but smart employers seize the moment to bring on and retain top talent.

By Ryan Wong Edited by Russell Sicklick

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Opinions expressed by Entrepreneur contributors are their own.

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A thousand people laid off at Shopify. Uber sheds 14 percent of its workforce. A hiring freeze at Google. As the economy cools, the massive shift in workforce dynamics is plain to see. Jobs are on the chopping block.

But should they be?

Historically, recessions have been accompanied by sweeping layoffs. Case in point: in the Great Recession of 2008, the U.S. lost a whopping 2.6 million jobs. Workforce reductions have become the knee-jerk reaction to any signs of economic troubles. But this standard approach is often dead wrong.

In the years I've spent at the helm of a people analytics company, I've seen workforce data from good times, downturns and even recessions. I've noticed firsthand that even the most austere eras can be a good time to cultivate talent instead of culling.

In fact, with preparedness and planning, wise employers can actually use a downturn to emerge stronger when things inevitably swing upwards again. Here's how.

The false economy of layoffs

It's standard practice for companies looking to stay afloat to question the biggest line items in their budgets. Shedding workers seems like an easy solution, but this approach is deeply flawed.

These actions have unintended consequences that not only cost organizations money but also impede future growth. Companies may save money on salaries, but when business picks up, many find themselves without the people power to meet demand.

A stark example, plainly evident right now, is the airline industry. Airlines gutted staff as the pandemic brought travel to a standstill. But the cuts went too deep and lasted too long. Though demand is now surging, airlines can't keep up, leading to lost luggage, canceled flights and ultimately, lost revenue. While this is an extreme case, it illustrates the risks of short-term talent strategies.

Layoffs bring with them a loss of knowledge and experience with real impacts on businesses' ability to operate. Worse still, if organizations need to rehire some of those workers, they could be on the hook for pay increases (potentially having issued severance just months before). It's a lack of planning that handcuffs companies into drastic, reactive measures.

Instead of playing catchup, a better approach is to continuously monitor and anticipate changes in workforce needs. Done right, this can mean avoiding layoffs altogether.

Related: Four Ways To Ensure Your Company Will Survive A Market Downturn

Making the most of the people you have

At root, this starts with understanding what employees are doing and how it impacts business. Though this sounds straightforward, only with the latest generation of people analytics has it become possible to equate talent with business results on a truly granular level.

For example, a tech support worker's time is typically tracked by call volume, call time and tickets responded to. By analyzing these data points, you can see whether employees are being kept busy with the right things. Maybe a large percentage of work tickets concern an issue that's better addressed through a chatbot, emailed instructions or an infographic on the website.

The upside here is the ability to reallocate time and energy to projects that move the needle most for the business.

But how do you retain workers, especially high performers, when budgets are tight? When pathways for traditional promotions are unavailable, lateral movements represent a powerful way to keep employees engaged. This career lattice approach keeps motivated talent growing and learning within your organization. At IT powerhouse Cisco, for example, high-potential employees are systematically moved around to build versatility and institutional knowledge.

Meanwhile, a downturn is also a critical time to cultivate junior talent. Even when an official promotion isn't possible, we've given developing employees more responsibilities as scrum masters, leading Agile project management or as leaders of internal task forces. They gain a profile within the company and have the opportunity to grow their leadership skills.

Related: How Small Companies Can Cultivate Homegrown Senior ...

Don't close the door on new hires

While hiring will inevitably slow during a downturn, it doesn't need to stop completely. The economic slowdown introduces opportunities to bring on top talent.

Even as the economy cools, we're experiencing a tricky labor market, with open roles stubbornly hard to fill in many sectors. But 55 percent of business leaders say they expect market churn could help with recruitment. Indeed, after years of competing with big tech's oversized comp packages and signing bonuses, smaller firms may find top talent they wouldn't otherwise attract within their grasp.

Some of those hires may actually be familiar faces as former employees boomerang back to old roles after testing the waters elsewhere. Our data shows these kinds of hires are trending upwards.

There are several key reasons why boomerang hires can be strategic. For one thing, younger employees will bring back a better understanding of the realities of the labor market — and a better appreciation for what your organization can offer.

Moreover, these hires already understand the company culture. Even if their return entails a higher salary, it can save organizations handily in training and onboarding.

Despite popular belief, a downturn shouldn't be a carte blanche for employers to treat their people as dispensable. Companies that seize the opportunities presented by this phase to listen to their team, hire strategically and plan for future crises can safeguard themselves against economic pains to come.

Doing this right comes down to something as mundane as it is transformative: gathering and using people data. This isn't a one-and-done measurement. What I'm talking about is a continuous, real-time assessment of HR needs — leveraging technology to ask the right questions, gather the right information and draw valid conclusions.

Ultimately, understanding your people and how they impact business outcomes isn't optional; it's a must for high-performing companies. Companies that take this approach can preempt layoffs and just as importantly, make better use of the talent they have.

Related: Boomerang Employees: an Untapped Talent Source?

Ryan Wong

Entrepreneur Leadership Network® Contributor

CEO of Visier

Ryan Wong is CEO of Visier, an engineer turned exec and a fan of data-backed decisions on a mission to take the guesswork out of business.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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