The Motley Fool: "If It Does Not Hurt, You Will Not Learn"

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In the early 1990’s, brothers Tom and David Gardner founded The Motley Fool, a business that started out with nothing more than a printed newsletter of random thoughts and musings. “It was for our parents’ friends,” David explains, “and they were the only ones willing to pay us $48 a year for our ravings.”  Many of these “ravings” happened to be about investing, and as they began to focus there – and took advantage the Internet as a new distribution platform – the company quickly grew into a multimedia brand that included a popular web site (fool.com), best-selling books, a radio show and syndicated newspaper column.  

From its earliest days, the Alexandria, Virginia company has been driven by the idea of democratizing investment information; the notion that with a little hard work and research, people could make wise investment choices on their own didn’t need to waste money with advisors or mutual fund companies.  At the height of the dot-com mania, the company attracted significant venture capital investment, raising more than $50 million, and by early 2000, employed about 425 people.

Then, suddenly, everything changed.  The dot-com bubble burst, revenues failed to materialize at the scale that Motley Fool management and their investors had anticipated, and costs had to be cut.  With so much of their expenses tied up in people, headcount was the first place they had to look.  Over a nine-month period, beginning in March of 2001, they executed three separate rounds of layoffs.  As many other companies experienced around that same time (including the one that I was responsible for), with each reduction, they thought they had gone as far as they possible could.  But after the first two, they realized they needed to cut more, and by November of 2001 the company’s workforce was reduced to 85 employees.

David Gardner is a fan of games of strategy, and likes to quote one of the gurus in the field, Reiner Knizia, who says, “If it does not hurt, you will not learn.”  These downsizings hurt everyone involved, and the Gardners learned from the experience.  First, they needed to take stock of their business plan, making sure they could grow their business with more sustainable lines of revenue.  “Professionally and personally it hurt as badly as it could ever hurt in 2000 and I don’t think I could go through that again,” recalls Tom.  “The beauty of that is it forces you to learn and we have created a business model that there was no blueprint for.  There was no game plan.  There was no one to follow.  We built a membership business online beginning in 2002 when people were not only saying you can’t charge on the Internet - which was the going belief back then - but you certainly can’t charge now when everyone’s been brutalized and you certainly can’t charge for investment advice when everybody lost their shirt.”   

The Gardners also learned how unsettling layoffs can be for the surviving employees.  As the company regained its footing and slowly rebuilt the company’s headcount to 225 by 2009, they emphasized progressive people policies that made their employees feel valued and secure.  For example, every employee at the Motley Fool has unlimited vacation and sick days.  This sounds crazy to some, but the Gardners explain that by hiring the right people, and reviewing everyone’s performance once per quarter, the work gets done and people feel respected and trusted.

The Motley Fool’s leadership team was tested again during the economic downturn of 2008-9, when once again it became clear that costs would need to be curtailed.  Learning from the pain of 2001, this time they took a different approach. “In October of 2008,” CEO Tom Gardner explains, “we gathered the entire company together and I said, ‘I’m sure that part of the legacy of the Motley Fool is that you might be afraid about your employment at the organization.  I want to let you know that layoffs are off the table.  Everything else is on the table, but we are not going to have layoffs again at our company.”  With that forthright assurance, employees came to work secure in their positions and eager to work on cost saving and revenue enhancing solutions for their company. 

From this positive experience, and learning from the pain of 2001, the Gardner brothers now have a different outlook on corporate downsizing.  Tom explains, “I believe much more in really cost cutting and taking hard looks at what you’re doing and stopping if it’s not the right strategy for you at that time than I do letting go a single high performer.  If you’re not a high performer in your organization, that’s not a layoff.  As long as you’re performing the most horrifying thing you could do is say thank you for your excellent performance but we can’t afford you.  That means we’ve made a terrible mistake.  If you’re not performing, you’ve made a bad mistake in picking your organization or not delivering when you were there.”

The Gardners learned from the pain of downsizing and the return on the Gardners’ integrity has been significant.  Emerging from the depths of the market crash in 2008, and feeling confident in their own job security, The Motley Fool’s employee base is energized and high performing, and in 2014, the company topped Glassdoor’s list of best small to medium sized companies to work for.

 

Takeaways

“If it does not hurt, you will not learn,” is a helpful maxim and rings true in the story of the Gardners and the Motley Fool.  But it’s important to think about why those layoffs hurt in the first place.  Had Fool management been callous and unfeeling, letting people go would have been seen simply as the right, necessary thing to do – no big deal.  Likewise, if Tom and David had been financially compensated for the terminations they might not have left as big a mark, either.  This latter scenario is not so farfetched as it’s often the case with publicly traded companies that news of belt-tightening leads to an immediate increase in share prices, an instant gain for CEO’s with options or other stock holdings.  The best long-term outcomes are achieved, it could be argued, when managers who survive a reduction in force are in a position to feel at least some of the pain; the hurt that allows them to learn.

William Burke