Why Cutting Costs in Hard Times Is the Worst Thing You Can Do

October 29, 2015
By Chip Conley, Head of Global Hospitality and Strategy at Airbnb

Seven years ago, at the height of the economic recession, many companies learned the hard way that cutting costs simply to preserve the bottom line is a short-term fix to a larger, more complicated problem. Overwhelmed by a sense of fear and market instability, they announced massive layoffs, budget cuts, meeting cancellations and highly restrictive travel policies for their employees.

As founder and then-CEO of Joie de Vivre Hotels, I chose another route. Inspired by Abraham Maslow’s theory of human motivation, I introduced a new corporate philosophy to address the foundational needs of my employees, customers and shareholders. And by the end of recession, Joie de Vivre had tripled in size, compared to earlier in the decade.

Many business leaders were focused on survival, and chose to discontinue any activities deemed “non-essential.” I challenged my team to focus instead on success and transformation, asking: How can we ensure that employees understand the impact they have on the customer experience? How can we build a sense of community and comradery across the organization? How can we promote the intangible drivers of corporate excellence: brand loyalty and reputation, employee engagement, customer evangelism and the ability to innovate?

Finding the answers meant continuing to invest. It meant saying “yes” to business travel, employee retreats, association conferences and hands-on professional development opportunities. It meant putting ourselves out there, prioritizing growth and understanding that without risk, there would be no reward. 

Looking for opportunities

For a business to be successful, its leaders cannot focus solely on the stockholder or next quarterly balance sheet. They must work to create an environment of positivity, innovation and growth for employees, customers and investors. This was true during my time at Joie de Vivre and continues to guide my thinking today, as Head of Global Hospitality and Strategy at Airbnb.

I’m constantly looking for opportunities to engage the people who matter most to our organization and as someone who spent nearly 30 years as an hotelier, my approach often involves bringing people together and meeting face-to-face.

For example: Last year at Airbnb, we invited 1,400 of our top hosts to meet in San Francisco for a three-day conference (and we have 6,000 hosts from 100 countries convening for this year’s Airbnb Open in Paris). We recognized their contributions and provided tools that would help them better understand the supply and demand for rooms in their respective cities. We used the event as a platform for education and training as well as networking and long-term relationship building with participants sharing stories from across the globe.

Focusing on IRL

There’s a persistent need to balance the convenience of connecting online with the greater value of meeting face-to-face. For one thing, nuances can easily get lost in an email chain or on a Skype call. For another thing, the positive emotion we feel during a conversation with someone else simply cannot be replicated on the Internet – at least not yet.

I often draw a distinction between URL – the web address we use to find information online – and what I call, IRL – the In Real Life Experiences that fuel new relationships, creativity, education and training. The world has become positively obsessed with URLs, but still needs the benefit of IRLs to excel in today’s highly competitive business market.

Embracing your inner blowfish

Companies that invested more in business travel during the economic downturn actually grew the fastest, according to an Oxford Economics report. Every dollar invested in business travel realized $9.50 in new revenue and produced $2.90 in profits.

That’s why even when times are tough, I am quick to remind fellow business leaders that there’s an advantage to investing conferences and meetings, trade shows and in-person client events – even on days of great uncertainty.

My advice to them is, “Embrace your inner blowfish.” When faced with a dangerous or challenging situation, resist the urge to shrink down and scale back. Choose instead to grow, expand and REACT – recognizing that there’s a pivot point between survival and success.

 

This op-ed first appeared in Inc.