The art of the layoff

Layoffs can be traumatic for both employees and business owners. Here's how to make the best of a bad situation.

By Alexander Stein
Featured on Fortune Small Business

(Fortune Small Business) – How many employees have you let go this year? This month? How many more will you have to lay off next month?

U.S. companies with fewer than 50 employees shed 904,000 jobs during the first four months of 2009, according to the ADP National Employment Report. Being laid off is unquestionably a shocking psychological and financial event, but it can be just as traumatic for the business owners who must execute these difficult decisions.

Few entrepreneurs launch businesses with the goal of playing God. In fact, many leave corporate careers precisely because they want to regain a degree of ethical autonomy. So the experience of causing pain or destruction, rather than being an engineer of progress, can be devastating for them. Take Rebecca, 44, owner of a high-end stationery business in New York City. Like many business owners, Rebecca has beenforced to cut payroll as her market contracts.

Recently Rebecca phoned me on the eve of what she called “the next round of bloodletting.” (I’ve changed certain biographical details to protect the privacy of Rebecca and her employees.) Her distress was evident in her voice.

“It kills me that I have to do this,” she managed to say. “Tomorrow I’m going to have to tell three wonderful people they don’t have jobs anymore. Tom and Andr have worked for me for 10 years. Patty is a single mom. Since her brother lost his job in February, she’s been taking care of his two kids as well. What will happen to them, and why do I have to do this?”

Rebecca knew the answer: because the survival of her business depends on it.

In corporate America, layoffs tend to proceed with cold efficiency. The CEO sends out a companywide e-mail, no doubt crafted and vetted by legal and HR, explaining the need to “realign costs” with the company’s strategic goals. Managers then call the victims in for a brief closed-door meeting before security guards escort them from the building.

But for entrepreneurs like Rebecca, whose work environments tend to be intimate and familylike, cutting employees can feel like losing a limb.

Layoffs register high on the entrepreneur’s emotional Richter scale, with aftershocks often taking as severe a toll as the initial event. Business owners commonly experience sleeplessness, depression and the recurrent replaying of events and decisions.

So how do you survive layoff trauma without coming apart? There’s no universal solution, but the following five-point prescription should cover most situations.

Click through for Dr. Stein’s survival guide.

Alexander Stein, Ph.D., is a practicing psychoanalyst in New York City and a principal in the Boswell Group, a consulting firm.