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The art of mass layoffs: Reflections of founders who have been there, done that.

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Of late, several high-profile startups in India have conducted mass layoffs, letting go 10-30% of their workforce. The reasons cited range from strategic pivots, to over-hiring, and investor pressure to control high burn rate. Many layoffs resulted in severe backlash from the fired employees over Twitter and other social media. Many others made fodder for sensational stories in startup tabloids. I personally spoke with the founders, management teams, and investors at some of these startups over the last week, and thought it would be valuable to collate and synthesize their reflections and learnings in one place. So, here’s the advice on how to manage layoffs from startup founders who have been there, done that.
  1. Cut deep, and cut once: Founders need to be cognizant that the most convenient (but often wrong) way to layoff is to fire the smallest possible number of people. There is a natural inclination to cut as few jobs as possible for two reasons : (1) the huge personal and professional consequences for the fired employees, and (2) the inherent founder’s bias of believing that things would suddenly and miraculously “start working out” with their business. Most of the time this “miracle” doesn’t actually materialize, leading to multiple job cuts which affect the employee morale and productivity terribly. Given the choice, the founder should err on the side of cutting too deep vs. too shallow. Worst case, the company would have to rehire, which can actually help paint a nice turnaround story. Marc Andreessen’s tweet from yesterday captures the essence of this advice really nicely:659174707749519362
  2. Execute fast: Once the layoff decision is made, the management should move fast to execute on that decision. Word usually leaks out soon: It did at all the four startups I spoke with, and delay in communication was the primary driving factor. The leak can lead to an additional set of issues that complicate the already taxing process. Employees start to ask managers to confirm or deny the layoffs “rumour”. If the managers confirm, they contribute to the leak. If they deny, they are essentially lying. Choosing to remain silent further aggravates the situation.
  3. Prepare, Prepare, Prepare!: The company should have a well thought out and clearly documented, step-by-step implementation plan and Q&A document, both for the founder/CXO team and for the mid-level management. There should also be a meeting to go over this implementation plan and FAQ responses. Bringing uniformity and cohesion into the message that is communicated across all layers of the organization is immensely helpful in navigating the process.
  4. CEO to communicate the decision at a company-wide meeting (NOT via email): The CEO must deliver the context for the layoffs in person in an all-hands meeting. Email should be avoided; it tends to come across as really impersonal while communicating sensitive issues such as layoffs. The CEO should own the layoffs decision instead of diffusing responsibility to the board or investors. She should clearly recognize that the fired employee is negatively impacted, but also communicate that the decision is irreversible. She should also mention that appropriate benefits and support would be provided to the affected employees. It helps to not take Q&A in a company-wide forum immediately after such an announcement; the CEO should mention that the respective managers would communicate the firing decision to the affected employee within the next X hours and answer questions on a 1:1 basis.
  5. Provide severance support: Employment laws can differ considerably between locations, age groups, sex and race. Consult the company lawyer and do at least what’s the required minimum on the legal front. The severance should be viewed as an investment to reduce the lawsuit and negative publicity risk for the company by agreeing to non-litigation and non-disparagement with the severed employee. While communicating the firing decision, the manager should be fully prepared with details of the benefits and support that the company plans to provide. In addition, they should extend personal help in making introductions and recommendations to other potential employers.
  6. Manage external communication: Despite doing all of the above, some backlash from affected employees is obvious and expected. The CEO can mitigate the negative impact on the company’s brand and future hiring prospects by proactively speaking to the media, issuing a press release, or writing a blog post. Such communication should explain the rationale behind the layoffs and mention the support that the company seeks to provide to the fired employees, in particular the severance packages.

    While layoffs are never easy, they are sometimes necessary. What do you think startup founders can do to efficiently manage layoffs?

6 thoughts on “The art of mass layoffs: Reflections of founders who have been there, done that.

  1. Cool post! It’s great to hear some thoughts from folks who have actually been through these situations.

    These points align almost exactly with what we are taught here at business school in classes like Managing Human Capital – be upfront, cut deeply all at once, don’t communicate by email, etc. Did you come across anything in talking to these folks that conflicted at all with the conventional wisdom on layoffs? Did any of their learnings conflict with each other? It may be that this is an area in which there are just very clear right ways and wrong ways to do things, but if that’s the case, I wonder why companies still do it the wrong way from time to time. Why do some layoffs still get communicated by email, if everyone knows the CEO should announce the news in person? I’d love to hear someone who didn’t follow all the rules in the layoff process explain why they deviated from the playbook.

  2. SC, I loved reading your post. I appreciate you taking the time to speak with leadership at these start-ups—It’s super valuable as a reader to know that you got your insights from multiple people who have gone through something as tough as a mass lay-off.

    Most of my thoughts on this topic are related to the emotional costs—and therefore unforeseen economic costs—that the start-up experiences in a mass layoff. Such costs are especially salient when it comes to your fifth point on providing severance support.

    I think it’s easy for companies to under-estimate the personal costs of big lay-offs. I worked on a massive headcount reduction this summer—which fell in the 10-30% range—at a spin-off company. Even at this larger, global corporation, where you would expect relationships between management and employees to be less personal, it was incredibly painful to watch the process—and I was just an external party. Employee morale was plummeting as people watched their colleagues and friends being let-go in massive waves, and my peers who had worked with the company before repeatedly commented that the senior clients’ general energy level was much lower than usual. I can imagine those emotions being even more amplified in a start-up environment, where we can usually assume that the company is smaller, personal relationships are deeper, people are more deeply invested in the company, etc.

    Perhaps one way to deal with the emotional impact of a lay-off is to make sure that the severance packages and garden leave times are extremely generous, rather than just giving the minimum legal requirements. The trade-off, of course, is that it is much more costly for the start-up to increase severance packages during a time when it is incurring a large amount of one-time costs. But given that productivity is correlated with morale, it would be interesting to see if knowing that their peers received generous severance packages would help make sure the employees who are left feel like they’re working for a company that takes care of their people.

    It’s not an easy topic, and I appreciate you tackling it! Here’s to hoping we never have to go through it (on either side) ourselves.

  3. Great post. Layoff decisions are one of the most difficult ones to make, and what’s even more difficult is the actual process of going through the layoffs. Your post provides a good guiding framework, especially your first point “cut deep, and cut once”. I’ve seen many companies that were afraid of the impact of pushing for large layoffs, opting instead to fire small groups of people over an extended period of time. This actually worsened internal morale, since people saw the pattern of layoffs, and feared that they will be the next ones to go. “Cut deep, and cut once” approach should solve for this, as long as the founder communicates to those not impacted by the layoffs to ensure that the layoff is occurring only “once”, at least in the foreseeable future.

    With that said, it would be good to add a point that talks about post-layoff internal communications – how to alleviate fears of additional layoffs and bring company morale back to “normal” after a mass layoff.

  4. Very interesting post. Before starting school, I was working for a company going through a restructuring process, and we faced the mass layoff dilemma a couple of times. At the end, we decided not to go through the mass layoff option because, since we were so recently involved in the company, most workers deserved an opportunity to readjust to the new strategy. Therefore, we decided to offer attractive severance packages for the workers who didn’t want to go through the possibly painful restructuring process in an attempt to let them self select.

  5. Great post! I think one of nuances of talking in person to employees about layoffs is at times the reason behind multiple layoffs are different, and sometimes some reasonings are hard to make public without destroying relationships with the fired employees. The situation of a public setting is also hard to control and easy to be turned one way or another if not careful. I was at a startup during a time when a couple of their employees, including a senior director was laid off. This fostered rumors until the company finally addressed it in a company wide Town Hall meeting, the VP expressed in very politically correct terms that “the fit wasn’t right” and that he just wasn’t the person to take the company to the next step. Even though I appreciated him talking about the topic, I don’t think it completely put the uneasy atmosphere around the company to rest. I thought that he addressed the issue the best way he could publicly, but then the question remains for the rest of us, “what is fit?”, “am I a fit, or will I also be let go one day?” This all makes the topic more tricky, but I definitely agree presenting it in person is much better than addressing it through just an email.

  6. Great post! I would like to add that founders should also focus on the survivors as well. As already pointed out, mass layoffs have a profound effect on employee morale, however uncertainty about their own future in the company is not all they have to face. Since there are now fewer employees left, survivors will often have to manage greater amounts of workloads, and even be able to solve for issues that are not within their area of expertise. Proper training is therefore critical to avoid overstressing an already affected workforce.

    And in addition to proper training, they should also be given clear reasons why the layoff occurred in the first place, and why the firing decisions occurred as they did. This will help reduce the uncertainty and rumors that are so harmful for productivity. Good communication is key.

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