In this second of a series on the initial steps of a turnaround, the topic is how we decide who stays with the company and who will be let go.

In last week’s column, “The Initial Steps of a Turnaround: Nothing is Sacred,” I wrote that even if Grandpa Joe invented the rocking widget that started the company, if it’s no longer profitable that product line will be shut down. And if Grandpa Joe is still around and collecting a hefty salary while he spends the day perfecting his fly-fishing technique, he has to go as well.

In previous columns I’ve written about how I’ve had to fire business owners’ relatives and favorite long-time employees. It’s never an easy or enjoyable task but often has to be done to salvage the company.

So how do I decide who continues to collect a paycheck and attend the annual company picnic and who needs to pack up their things and go?

In an ideal situation, we will have time to assess the company’s situation, create a realistic budget, and then turn to the issue of downsizing staff if necessary.

I ask for the organizational chart and then take all the names off of the chart. I take the name of every person on that chart and put it on a separate piece of paper. Then I ask the senior management, “If you could start over again, how would you arrange the company? What positions are needed today to run the company?”

In good times companies tend to get fat. They add assistants, cars, desks, sometimes even buildings. Then as times get tough these positions and assets often remain even as the company’s financial situation begins to deteriorate. It’s a vital step to review the company’s organization in a fresh way.

That process may involve eliminating some positions, consolidating three jobs into two, or having people report in a different manner. Once we rearrange the organizational chart, we go through the names of the people on the pieces of paper and place them in the positions on the chart according to which person is the best one to handle that job, keeping in mind that we need the company’s best performers, its superstars, in the most challenging positions.

When that exercise is completed there will be names left that are not on the chart. And these are the ones we have to get rid of. They no longer have a role in the restructured company.

As for those superstars. In a number of situations the best employees have already left and those superstar performers are not available within the current pool of employees. So once we have stabilized the personnel that are remaining, provided new opportunities for some of the current people and gotten the company on the correct financial path, we need to conduct a search to find those key people.

We can’t run a company with all average people. We need to create a “Lake Wobegone” situation, where like the children there, all the workers are above average.

In the next post I’ll discuss how to search for superstars.