This is driving me nuts.  From the blog of Loic Le Meur (founder of Seesmic)...

As you will no doubt know we are all operating in some very challenging and uncertain times right now. It's never easy to address topics like this but as a company we have felt the need to get Seesmic ready for what most are anticipating to be a bleak economic outlook for the considerable time going forward.
In order to prepare the company and ensure it has as strong a position until we reach to the other side, we have had to make some tough decisions around expenditure - the biggest impact being that we will be cutting 7 positions within the company.

(For the record, the bold was added by me)

First, Seesmic is a pre-alpha startup which means, they weren't making money to begin with.  I'm not sure the company's made any money whatsoever at this point.  So the idea that they need to cut jobs based on an economic downturn already seems a bit out of place.

But let's move past that for a second and say this is an act of "future proofing."  The company assumes there will be a downturn in the future and is planning to need revenue at some point so they are cutting proactively.

Based on this, lets look at the economic crisis as it stands right now.

First, the stock market is down significantly.  But in saying that you have to point out that it was up significantly not too long ago.  If it can fall 6,000 points in a year it can go up 6,000 points in a year.  In fact, today was the first day the Dow Jones has ever spanned 1,000 points in a single day. 

In other words, we're looking at volatility more than anything else (and again, that doesn't necessarily mean anything, see here)

Second, all economic indicators we have right now (as I pointed out a few days ago) point to a flat-to-mild downturn.  The U.S. isn't even in a recession.  In fact, as traditionally defined it's at least 5 months away from one in that a recession is defined as 2 quarters of negative GDP growth and the U.S. reported an increase of 3.3% in GDP for the 2nd quarter of 2008.  That was a month ago!

So the economy is not necessarily going in any direction.  A Credit crunch will certainly hurt but it will not, in and of itself, cause an economic downturn.  Which brings me back to these layoffs and here is where I'm going to go all CAPS out of frustration...

PROACTIVE LAYING OFF DOES NOT MAKE BUSINESS SENSE!

I'm sick of everyone saying "this makes business sense" when it simply doesn't.  Employees GENERATE revenue, cutting employees means you are backtracking which is a bad thing.  It means your business has started to fail and you can no longer turn your employees efforts into revenue.

IF YOUR BUSINESS HASN'T ALREADY STARTED TO FAIL YOU SHOULDN'T BE CUTTING JOBS

Economics is complicated and it's not unheard of for one sector (banking for example) to crash and burn while others remain untouched.  So you can not make wise business decisions based on macro economics.

Let me put it this way.  Let's assume Seesmic did an excellent job of picking their employees and it had the very best people suited to make the company successful.  Today they cut a bunch of employees.  Than 6 months down the line it turns out the current financial situation was just a minor correction or that the advertising sector remained untouched. 

Now all those quality employees are off in new jobs and Seesmic has compromised its strategic position based on unsubstantiated fear.  That's not good business by anyone's standard.

Addendum: It's been pointed out to me that Seesmic might have been planning to get a third round of funding and that might be why they are having to cut jobs now.  That may be true but if that's the case I consider that bad business.  If you can't get to profitability with $12 million dollars than your failures aren't the economy's fault.  More importantly, if that's the case than you shouldn't be blaming the economy and contributing to what is already an irrational panic.

Usually I agree with John Furrier but he made a post today, which was quoting a comment written by Denny Miu, that I couldn't disagree with more if I tried.  Here's a quote...

This is the beginning of the beginning. It will get a lot worse for a lot longer. My experience is that is that “just because you are convinced that it won’t be get any worse doesn’t mean that it will get better”. If you are a CEO running a startup with fixed cost, whether your company is profitable or not, now is time to cut at least one-third of your workforce and make sure you have enough cash in your bank to sustain two to three years of burnrate.

If your company is not yet profitable, then burnrate is obviously equal to fixed cost. If your company is profitable, think about what happens if your revenue goes down to zero. Keep in mind that just because you sell $1M this month doesn’t mean that you get a $1M worth of incoming cash. What if your customer doesn’t pay, or if they decide to pay in 60 days.

...

Unfortunately cutting fixed cost means cutting headcount. In other words, now is time to lay people off. It is a very tough thing to do, especially for entrepreneurs. In summary, what I have learned is that “your most valuable asset is your money, not your people”. I have learned this the hard way. It is the best advise that I ignored. Let it not be yours.

First, if you can cut 1/3rd of your workforce and not feel it you probably don't have the best business management to begin with.  But I digress.

Second, the stock market does not necessarily equal the economy.  They are related but they aren't "to scale".  Read my posts over the last week or check out this great link from Aaron over at MarketingNinja.com

Third, there's really no point to planning for several years with $0 revenue.  Sure you could get away with that in the Web 2.0 world but I think it's becoming clear that companies are going to be expected to make money.  So If you can't find a way to make money during a 2 year period of time you need to pack it up.  People don't stop spending in a recession they just spend less.  If you're making no money that isn't a recession that's your product sucking.

Fourth, on the theory that you should "lay off people now" I strongly disagree.  The worst thing you can do is to lay off people for no reason or with a reason that basically boils down to "we're overly paranoid".  Laying off someone is a huge hit to overall morale and the only weapon an employer has against that hit is solid reasoning.  Being able to tell existing employees "look, we had to do this, here are the numbers justifying why" is invaluable.  I'm all for having a "draw-down plan"' that sets revenue markers for laying off people (e.g. if we hit this revenue point we lay off two people, etc...).  But Mr. Miu is suggesting a lay off before revenue even falls and that's just foolish.

Finally, on the comment that "your most valuable asset is your money, not your people" I have to say that's just not true.  The last thing you want to do is be the company that comes out of the recession having demoralized your staff and jettisoned most of your talent.  Because what happens next is that jobs open up at "happier" companies and anyone still left at your startup runs for the hills.  I can't think of a person I know who would want to work for a company with a philosophy of valuing money over people.

That's really my overall point here.  Business is about planning and executing efficiently.  Mr Miu's suggestions are about trying to use over reaction to run a business and that's a recipe for disaster. 

The economy has had downturns since the beginning of time and business has had to deal with those downturns for just as long.  This isn't new.  If you want to prepare for a downturn do what companies have always done: Look at your current revenue, cut 10% and decide what you'll need to survive at that level.  Then cut another 10% and decide what to do at that level.  and so on. 

It'll take about an afternoon for a small company to come up with a comprehensive plan but I guarantee you it will be an afternoon well spent.