At some point youmay have to lay off a chunk of your team to reduce burn, especially now. Large layoffs at a startup are particularlychallenging because the team is small, everyone works in the same office or atleast closely, and the impact to the culture can be dramatic. Additionally since group layoffs are notperformance based but rather are due to the need to get burn down, remainingemployees worry about their own jobs and the future of the business. Our advice is as follows:
Cutdeep so you only have to cut once. Be conservative and cut more thanyou need to. Remaining employees will feeltheir job is safe if there’s only one round, but if you don’t cut deep enoughand have to do a 2nd round down the line, employees will think theworst and expect a 3rd round is inevitable. The damage multiple rounds do to morale andculture is irreparable. Your best talentwill absolutely start interviewing elsewhere.
Onceyou get done with the last layoff, get the remaining team together quickly. Explain what is happening, why it’s happening, and make the argumentthat the company is now in a much better position financially to not onlysurvive but to grow. Be very transparentand honest and don’t be afraid to share projections showing plans for thefuture, monthly burn, projected cash balances, and time to profitability. Having a presentation ready is helpful. Bevery honest, be transparent, and make sure everyone has a chance to askquestions.
Trynot to share the layoff plan with anyone else. You want to be in control of this process andsharing the plan with junior personnel who have more of a friendly relationshipwith people being let go is a big risk.
Getsomething in return for severance. You pay a severance for tworeasons: i) you’re an empathetichuman being; and ii) you need atermination 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 aseverance, so use it to get what you need.
Leteach employee go one on one if you can. They’ll havequestions or issues that they’ll want to discuss, some will want to cry, etc.Do it in person in your office. If thisisn’t possible because you’re laying off many people, then make sure you gathereveryone you need to layoff in one room and do it together. Explain that this isn’t the ideal way to dothings because of volume so you don’t look insensitive.
Talkto everyone. For the people that you keep,don’t let them go home without talking to them and reassuring them the companyis now in a stronger position. Make timeto meet with remaining employees one on one, if practical. On layoff day, your entire afternoon needs tobe free so you can handle any fallout.
Insurance. Makesure you have EPL insurance. It’s notuncommon for terminated employees to get litigious. People that you thought would never sue youturn around and do it because they think it’s best for their family.
Stock Options. Forthe employees that you kept, this is a good time to re-incent them with additionalstock options. Even if the grants aresmall, they’ll be appreciated since they were unexpected, and it certainly wonthurt morale and work ethic.
Morale is going tobe 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 strongerposition financially. It’s critical tocommunicate with the employees that you’re keeping. Share with them what the plan is goingforward, why the company is now in a much stronger position, and how you’regoing to grow. Best of luck.
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