We laid off 35 percent of our team and discovered we never needed them

More people does not equal more productivity.

My general manager walked into my office with the same concern she had for months. “We need more people,” she said.  

Because I trusted her and because the numbers seemed to back it up, I said yes. We hired — a few here, a few there. Each time it made sense.  

My debt relief company was growing. I was building partnerships, speaking at industry conferences, and doing everything I could to raise our profile. She was in the trenches, running operations. So, when she said we needed more people, I trusted her judgment, and we hired until we couldn’t.  

A key partnership collapsed. Almost overnight, we lost the support structure propping up a significant portion of our operation.  

The result: we had to let go of roughly 35% of our staff.  

I’d worked hard to build a family atmosphere. Losing those people hurt in ways that had nothing to do with the balance sheet. It cost trust and relationships. It cost something way harder to recover than money.  

The numbers that shouldn’t have made sense

For the first few weeks after the layoffs, I barely slept. I kept waiting for the other shoe to drop — client complaints, missed deadlines, and output cratering. It didn’t happen.  

Three weeks in, I pulled the numbers. Revenue, client satisfaction, and delivery speed were all the same. 

I called my GM into my office.  

“Walk me through this,” I said, pointing at the screen. “How are we doing the same work with 35% fewer people?”  

She looked at the numbers and then at me.  

“Tony… I think we could have been operating like this all along.”  

The painful realization: We never needed them

Relief lasted about 48 hours. Then it turned into something else — frustration. Something that still makes my stomach drop when I think about it.  

If we never needed more hires, we wasted more than payroll.   

If we could run at full capacity with 35% fewer people, that meant one thing: we’d never needed them in the first place.  

All that payroll, hundreds of thousands of dollars, could have been sitting in the bank when that partnership collapsed. With that cushion, we most likely wouldn’t have had to let anyone go.  

It could have been fueling growth — new partnerships, better systems, and enhanced marketing.  

We didn’t just waste money. We wasted options. Here’s a shocker: I wasn’t reckless. I was normal.  

According to research firm IDC, inefficiency already costs companies 20% to 30% of their revenue every year. I was making a shockingly common mistake, and you might be too.  

When my GM said we needed more people, I asked if the numbers supported it. They did. So, I hired. What I didn’t ask was: “What system are we missing?”  

How hiring hid broken systems

Here’s what I’ve learned the expensive way: Hiring can mask the fact that your systems are inefficient. When output lags, the reflex is to add headcount — more people and more capacity. It seems logical.  

However, the drag often isn’t a people problem. It’s a systems problem. Adding people to a broken system doesn’t fix anything. It just makes inefficiency more expensive.  

Growth creates enough noise that you can’t tell the difference until you’re forced to.  

The people who survived our layoffs weren’t just good at their jobs. They were good at building systems that made everyone else’s jobs easier. They didn’t manage tasks. Instead, they managed processes.  

Task managers execute what’s in front of them. Systems managers build repeatable workflows that produce results whether they’re in the room or not. The difference is everything.  

The systems-first question every founder should ask before a new hire

Before every hire now, I ask one question: “Are we solving a capacity problem, or a clarity problem?” If it’s a clarity problem and we don’t have a system in place to efficiently handle tasks, clear ownership, or documented workflows, another person won’t fix it. They’ll just make it more expensive.  

The most expensive payroll isn’t the one you can’t afford. It’s the one you didn’t need.  

This column, The Systems-First Founder, is where I help you answer that question before it costs you what it cost me. The one that asks: Where are the missing systems that could make this operation hum? Because that lens is a lot easier to look through than the one that shows you the small fortune you wasted, or the people you let go because of it. 

This post originally appeared at inc.com.

“Click here to subscribe to the Inc. newsletter: inc.com/newsletters"