Layoffs at a startup suck, but there is a right way to do it.

Many young company goes through it: at some point you may have to lay off a chunk of your team to reduce burn.  Group layoffs at a startup are particularly challenging because the team is presumably small (less than 30 people), everyone works in the same office, and since group layoffs are generally not performance based but rather are due to the fact that you need to get burn down, remaining employees panic as they worry about their own jobs and the future of the business.  Our advice is as follows:

 

-Make only want to have to do this once ever, so 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 even though it may never come.  The damage multiple rounds do to morale and culture is irreparable. 

 

-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. 

 

-Do it on a Friday after lunch.  Nobody wants to go into work the next day after seeing their friends laid off. 

 

-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.

 

-If you need something from the terminated employee such as help transitioning or even to not talk about the firing for a few hours so you can layoff other employees the right way that afternoon, plan on an appropriate severance.  Make it clear that any failure to help with what you need will result in no severance.  Companies do not legally owe employees a severance, so use it to ask for what you need from them.

 

-If you can, let each employee go one on one.  They’ll have questions or issues that they’ll want to discuss, and a group layoff may not appropriately allow for that.    

 

-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 they ask.  On layoff day, your entire afternoon needs to be free so you can handle any fallout. 

 

-When you do a layoff, you generally want someone in the room with you as a witness.

 

-Make sure you have EPL insurance.   It’s not uncommon for terminated employees to get litigious. 

 

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, letting them know 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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