Leslie Segal sensed the change almost immediately. The eight employees of TestWare Associates Inc., her software-testing company in Piscataway, N.J., suddenly seemed grumpy and unmotivated. Lunch breaks grew longer, and the phones often went unanswered. Rather than the buzz of hard work, TestWare's offices were soon filled with the drone of complaining.
What triggered such a shift? In December, the $2.5 million company abruptly lost three longtime clients, driving revenues down 30%. Employees, who had known nothing but steady growth, began to fear that the company's future, and their own jobs, were in jeopardy. They grew so distracted that performance began to suffer. "I felt betrayed," says Segal, 45, who now spends more time soothing her employees' fears than working on TestWare's actual projects. "My next company," she jokes, "is not going to have employees."
Unfortunately, going solo isn't an option for many entrepreneurs. And for those like Segal who have not experienced a downturn before, managing employees has never been more of a challenge. "Entrepreneurs are panicked because they don't know or don't remember how to get through a recession," says Roxanne Emmerich, a Minneapolis business consultant. "Employees sense this fear and are very nervous."
SETTING THE TONE. The question is how to soothe those nerves. Segal's prescription: more information. She started a weekly e-mail newsletter that describes the various new projects the company is bidding on. "I can see they're working hard to maintain the business," says software-testing specialist Abe Hadded. "So I've become less interested in looking for a job outside the company." Segal has also used the downtime to send employees to training courses and networking events--an investment she expects to pay off when business picks up.
Perhaps most important, by taking action, Segal signalled to her employees that she was in control of the situation. "The leader sets the tone and becomes the mirror," says Richard Chaifetz, chairman and CEO of ComPsych Corp., a Chicago human-resources consulting firm. "Entrepreneurs who wear their hearts on their sleeves must be aware that this impacts employee attitudes."
It's not always easy to remain upbeat, though. In January, Gregory Matusky, the 40-year-old founder of Gregory Communications Inc., a public-relations firm in Ardmore, Pa., suddenly lost five clients--20% of his business. "I was scared and devastated," he says. Soon, his 26 employees began to feel the same way, dealing with clients without enthusiasm and dragging their feet over small assignments. Matusky knew things had to change. "When you're facing low revenues and an employee walks into your office, the immediate instinct is to tell them to go away," he says. "But this is when you have to support them. Otherwise, it has a real snowballing effect."
HONEST TALK. To raise staff spirits, Matusky first appointed his most senior manager to act as mentor to junior associates, most of whom had never before seen bad times and had little idea of how to handle clients in the new economic environment. "It's natural to get bummed out when you lose an account," says Sharon Sargent, a 26-year-old account executive who has worked at the agency for three years. "It helps to talk to somebody who says: `I know, I've been there."' Matusky also started an e-mail newsletter, titled Did You Notice, in which he highlights employees' achievements. On a more playful side, Matusky installed a table-hockey game in the conference room and treats employees to lunch on a regular basis.
But workplace experts caution that cute perks only go so far. "You can do these things all day," says Chaifetz, "but if you don't talk honestly and create a vision, you will not have a company." Unless of course you have the company Segal dreams of: one without workers.
By Naween A. Mangi
With Cynthia Daniels in New York