The Downturn Team Preservation Rule
Let owners absorb the downturn before sacrificing a proven team
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 94%
Moore's downturn rule is to protect a good team before protecting the owner's previous earnings. He rejects the assumption that payroll cuts automatically restore profit because firing even a few employees can place a perceived guillotine over everyone else's desk. Fear then weakens morale and can push the strongest remaining people to seek other jobs. The decision starts by confirming that the business plan is still viable and distinguishing productive capacity from genuine bloat. If the company can carry the period, the owner accepts making less or losing more, preserves employee compensation, and keeps the infrastructure ready for a recovery. The preventative half occurs during booms: increase volume without indiscriminate hiring so a market reversal does not force layoffs.
Origin
Moore says Loan Pronto retained its employees through the 2022 mortgage decline after tripling volume without hiring heavily during the boom.
Core principles
- 01Do not assume expense cuts create profit
- 02Protect proven people through temporary weakness
- 03Let the owner absorb pain before employees
- 04Preserve capacity for the eventual recovery
- 05Avoid overhiring during boom periods
How to run it
- 1
Test business viability
Determine whether the downturn is temporary for a fundamentally workable business plan or evidence that the model itself has failed.
Pro tip Preservation makes sense when the retained infrastructure can produce again as demand returns.
Watch out Do not use loyalty language to conceal an insolvent or structurally broken business.
- 2
Identify real bloat
Separate unnecessary expense from productive employees who have already contributed and remain needed for recovery.
Pro tip Evaluate the contribution and future capacity lost, not only the monthly salary saved.
Watch out A quick payroll total ignores the second-order cost to the remaining team.
- 3
Price the culture damage
Consider how each cut changes security, morale, and retention among employees who stay. Treat fear-driven departures as part of the cost.
Pro tip Ask what loyal employees conclude when a strong colleague is dismissed immediately after the market turns.
Watch out The apparent saving may be smaller than the talent and trust it destroys.
- 4
Put owner pain first
Where the company remains viable, allow owner earnings to fall before repeatedly cutting employee compensation or removing productive people.
Pro tip Make the sacrifice visible through stable treatment rather than speeches.
Watch out Only carry losses that the business can actually survive.
- 5
Preserve recovery capacity
Keep the people and operating infrastructure required to expand when market conditions improve.
Pro tip Use slower periods to maintain readiness rather than rebuilding the entire team later.
Watch out Capacity preservation is valuable only if future demand can use it.
- 6
Control boom-time hiring
When volume surges, seek productivity gains before matching every increase with new headcount. This reduces the layoffs a later contraction would otherwise force.
Pro tip Compare volume growth with headcount growth throughout the expansion.
Watch out Understaffing that burns out the team is not preservation.
In the wild
Moore says the company tripled volume during the strong market without hiring heavily. When conditions worsened in 2022, that discipline meant Loan Pronto did not need to lay off employees. He argues that keeping good people may require the owner to make less in the short term, but leaves the company with infrastructure that can expand when business returns.
→ The company retained its team and preserved operating capacity through the downturn.
Common mistakes
Cutting toward profit
Small payroll savings can produce larger losses through fear, departures, and damaged culture.
Reducing compensation repeatedly
Asking employees to absorb every shortfall undermines morale and the owner's claim to value them.
Overhiring in the boom
Uncontrolled hiring during peak demand makes painful layoffs more likely when the cycle reverses.
Is it for you?
Best for
It is best for viable companies with proven employees and enough owner or company capacity to carry a temporary decline.
Not ideal for
It is not ideal when the business is no longer viable or expenses are genuinely bloated beyond what the company can sustain.
From the transcript
“I don't think you can cut your way to profit but you can cut your way to a bad culture pretty quickly”
“you just have to just suck it up as an owner and realize that if you have a viable business plan you're going to lose…”
“we tripled our volume but we didn't hire a whole lot and so when things got worse we didn't have to fire”
From the episode
Less is More with Roger Moore