Scaling Business Down: A Conscious Response to an Economic Downturn

When we think about business growth, it’s usually upward and outward—bigger teams, more clients, expanded markets. Growth is often seen as something to always pursue. But during economic downturns or times of uncertainty, scaling down is not only wise but necessary.

As Aotearoa—and the world—faces yet another period of economic tightening, many founders and business leaders are confronting tough decisions. Cost pressures, reduced customer spending, finance tightening, and supply chain disruption are pushing even the most resilient enterprises to rethink their scale.

Generally larger businesses are more resilient and less prone to the sensitivity of downturns, but it doesn’t always follow and where they are also struggling, it filters down to their trading partners in the SME economy - the backbone of NZ business and our GDP.

This blog explores how scaling down doesn’t have to mean failure—it can be a regenerative pause, a realignment, and ultimately a resilient platform for the future.

The Taboo of Scaling Down

In traditional business culture, scaling down is seen as a sign of defeat. Laying off staff, shrinking services, closing locations—these are usually treated as worst-case scenarios. But sometimes it must be done to support ongoing business viability.

Scaling down is adapting through necessity, not giving up. Like pruning a tree to encourage healthy growth, pulling back can make room for stronger foundations and a more focused purpose.

Why Scaling Down Might Be the Smartest Move

Scaling down can allow you to preserve your business in a considered and ethical manner. When sacrifices are necessary, the concessions of the few are for the benefit of the many, and it’s better to start early and small rather than waiting till circumstances are dire.

Layoffs are never easy, especially for businesses that prioritise worker wellbeing. But in some cases, partial scaling down—such as reduced hours, job sharing, or voluntary leave can be more humane than aggressive headcount reduction.

What Does Scaling Down Look Like in Practice?

Scaling down doesn’t always mean gutting your organisation. It can take many forms:

• Reducing scope: Focusing on your most effective products or services and letting go of underperforming ones.

• Shrinking your footprint: Closing offices or physical locations to save on overheads, especially if remote work is viable.

• Reassessing partnerships: Scaling back on collaborations that drain resources or distract from core goals.

• Tightening team structures: Moving to a flatter or more flexible model, possibly with contractors, part time or casual staff.

• Slowing growth plans: Postponing expansion, pausing hiring, or delaying capital projects.

All of these can be done with care, intentionality, and transparency. And if done right, they can set the stage for a more focused, values-aligned resurgence later.

Communication is Everything

One of the hardest parts of scaling down is managing the human side—especially with your team, your customers, and your community. Here’s where leadership in action really matters.

Be transparent. People don’t need every detail, but they do need honesty. If your team knows that change is coming and understands why, they’re more likely to support the transition.

Hold space for grief. When we scale down, something is forfeited. A project you loved, a team dynamic, a dream that’s now deferred. Naming that grief and holding space for it—especially with your people—builds trust and helps with healing.

Tell the story. Don’t just announce the cutbacks—frame them. Let your stakeholders know this is a necessary move to preserve your mission. Be real, but also optimistic. You’re not just reacting; you’re re-orienting.

How to Approach Scaling Down Successfully

If you're considering a scale-down, here are some steps to help you approach it with clarity and integrity:

1. Revisit Your ‘Why’

While usually it is financially motivated, there may be other forces at play. So why are you doing it, and what problems are you wanting to fix.

Often achieving a sustainable and profitable business model is a core theme. But changes in customer buying behaviours and / or loss of a key customer, availability of critical staff in certain geographies, localised supply chain challenges can all play a part on answering the later questions of what, how, when and where so it’s sensible to get all the issues on the table.

2. Get Clear on the Numbers

Having a reliable view of where you have been and where you are going from a single reliable dataset. To use the driving car analogy, keep looking forward while keeping a cursory glance on your rear vision mirror.

While focussing on profitability (P&L) is important, so is a statement of cash flows and Balance Sheet (often referred to as a three-way model) to understand the wider implications of how the remedial plan impacts the finances.

Also importantly, do some sensitivity analysis.  While the “most likely” outcome should be the focus, a conservative iteration should also be prepared – for example, if we achieve 80% of our Sales target, what are the flow on effects and what additional austerity measures are required to remain cash flow positive.

Finally, if you have banking or equity covenants you can also model the impact on the above to ensure you remain as complaint as possible.

3. Prioritise with a Values Lens

Don’t just cut where it’s easiest—cut where it makes the most strategic and values-aligned sense. Keep what aligns most closely with your mission. Let go of what’s peripheral or unsustainable. It might mean keeping a lower-margin programme that has deep community value, while releasing a flashier but hollow partnership.

4. Engage Your Stakeholders

Your people and other stakeholders will have insights you haven’t thought of. Consulting with them early and meaningfully in the process builds buy-in and reduces fear. They may also help co-create creative alternatives to cuts—shared roles, reduced hours, or new revenue ideas.

5. Plan for the Rebuild

Scaling down is not the end of the road. As you stabilise, start planning for future opportunities. What could re-growth look like? When and How will you do it?

Cutting people deep and early might alleviate the immediate problem but it could compromise the ability to respond appropriately when new opportunities present themselves.

So there is a fine balancing act to getting this right.

Final Thoughts

Economic downturns will come and go. The businesses that last are those that adapt—not just financially, but culturally and strategically.

This means embracing slowdowns, contractions, and even temporary retreats as part of a healthy life cycle.

So, if you're facing tough choices, know this: you are not alone, and you're not failing. You're choosing sustainability, integrity, and resilience. And in doing so, you're setting yourself up not just to survive—but to thrive, when the time is right.

Scaling down is not the end of your impact story. It might just be the chapter that makes the next one possible.

If you are a business undergoing challenges with scaling down as a consequence of the economic downturn or are about to embark on the process and would value some guidance, please don’t hesitate to reach out for a chat.