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.
- 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:
- 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.
- 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.
- 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.
- 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.
- 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?