The right way to do layoffs
At some point you may have to lay off a chunk of your team to reduce burn, especially now. Large layoffs at a startup are particularly challenging because the team is small, everyone works in the same office or at least closely, and the impact to the culture can be dramatic. Additionally since group layoffs are not performance based but rather are due to the need to get burn down, remaining employees worry about their own jobs and the future of the business. Our advice is as follows:
Cut deep so you only have to cut once. Be conservative and cut more than you need to. Remaining employees will feel their job is safe if there’s only one round, but if you don’t cut deep enough and have to do a 2nd round down the line, employees will think the worst and expect a 3rd round is inevitable. The damage multiple rounds do to morale and culture is irreparable. Your best talent will absolutely start interviewing elsewhere.
Once you get done with the last layoff, get the remaining team together quickly. Explain what is happening, why it’s happening, and make the argument that the company is now in a much better position financially to not only survive but to grow. Be very transparent and honest and don’t be afraid to share projections showing plans for the future, monthly burn, projected cash balances, and time to profitability. Having a presentation ready is helpful. Be very honest, be transparent, and make sure everyone has a chance to ask questions.
Try not to share the layoff plan with anyone else. You want to be in control of this process and sharing the plan with junior personnel who have more of a friendly relationship with people being let go is a big risk.
Get something in return for severance. You pay a severance for two reasons: i) you’re an empathetic human being; and ii) you need a termination agreement signed that says the former employee won’t sue, steal IP, will keep everything confidential, etc. You may also need help with transitions. Companies do not legally owe employees a severance, so use it to get what you need.
Let each employee go one on one if you can. They’ll have questions or issues that they’ll want to discuss, some will want to cry, etc. Do it in person in your office. If this isn’t possible because you’re laying off many people, then make sure you gather everyone you need to layoff in one room and do it together. Explain that this isn’t the ideal way to do things because of volume so you don’t look insensitive.
Talk to everyone. For the people that you keep, don’t let them go home without talking to them and reassuring them the company is now in a stronger position. Make time to meet with remaining employees one on one, if practical. On layoff day, your entire afternoon needs to be free so you can handle any fallout.
Insurance. Make sure you have EPL insurance. It’s not uncommon for terminated employees to get litigious. People that you thought would never sue you turn around and do it because they think it’s best for their family.
Stock Options. For the employees that you kept, this is a good time to re-incent them with additional stock options. Even if the grants are small, they’ll be appreciated since they were unexpected, and it certainly wont hurt morale and work ethic.
Morale is going to be down for a few weeks, but it will eventually rebound as will the culture, especially as the remaining employees realize the company is now in a stronger position financially. It’s critical to communicate with the employees that you’re keeping. Share with them what the plan is going forward, why the company is now in a much stronger position, and how you’re going to grow. Best of luck.
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