In 2016, we fell prey to the implosion of financial markets and found our 55-person company unable to raise money. As a result we shifted our plan from scale to cashflow and reduced headcount from 55 to 12. We pulled together, stuck together, and pressed on. Over the next 24 months, we 5x’d revenue and sold the company. Here is what we learned about getting through layoffs when survival is on the line.
One of the hardest months of my life came in the summer of 2016. We had raised our Series A two years prior and were running out of cash. Our plan had been to raise our Series B in Q1 of 2016, but that was the quarter the Chinese market imploded driving down stocks globally and virtually shutting down all venture investing in the US.
But we’re now at a point where startups and investors who got drunk on easy money and big valuations are now sobering up.
- Anand Sanwal, CEO of CB Insights, April 2016
Even so, it’s more evidence that the cold wind is definitely blowing through Silicon Valley. As companies find it hard to raise money, they’ll have to get to positive cash flow sooner — that means real customers paying more money than the startup is spending.
-Business Insider, April 2016
Like many companies in today’s climate, we were a bit indignant about the position in which we found ourselves.
After all, we had done our jobs. Our revenues were growing substantially and we’d found our way to thousands of customers who loved our product.
Our sales motion was strong and we had racked up 12+ months of steady, predictable revenue growth. We had hit the targets that prospective investors, the board, and we as a team set for our Series B raise.
And yet we couldn’t close any money.
I hear a similar frustration from a lot of CEOs I speak with now. In the current COVID-19 crisis, it’s even more clear that companies are facing challenges far outside their control.
It’s more possible than ever that you may have done everything well and yet find yourself in an existential crisis.
It’s equally possible you may have entered this current crisis with a fierce determination to keep the team whole, but as the weeks have rolled on you find yourself waking up to the reality that you may need to make some very hard decisions. You may need to sacrifice the roles of some to protect the future of the tribe.
That is perhaps the single most difficult position a startup CEO can find herself in.
You are not alone
I interviewed a venture capitalist and good friend for the Sanity Labs podcast recently. He said something I’ve heard quite a lot of lately, that wherever possible this isn’t a time to consider layoffs as a prospective solution.
I take his point, that this is very much a time we must pull together and do our best to protect as many people as possible from economic disaster. And I know his statement came from a place of love and care.
But even as he said it I found myself cringing. I knew having lived through my own experiencing of layoffs that many companies in this climate were going to have no option. And that intuition has borne out.
I have seen several companies of good friends go through significant layoffs in the last two weeks alone.
If you are facing a similar decision, you are not alone.
Realizing a hard choice is necessary
I cannot imagine a harder time to try to plan effectively for a business than what leaders are facing right now. The economy is intentionally shut down, the financial markets have been in free-fall, and nobody knows how long this situation may last. There’s no clear future where we return to normal, and nobody knows what the new normal will look like.
So how the hell are we supposed to set and stick to financial plans?
The decision to go through a RIF (‘reduction in force’) is difficult on several levels.:
- You know the decision will be hurtful to everyone involved as well as many families
- There’s a temptation therefore to wait and see if things improve
- The more you wait, the less capital and therefore fewer options you have
- With less capital, the idea of trying to lay people off in a caring fashion becomes increasing difficult
It is thus easy to find yourself swirling down a funnel of despair and worsening circumstances.
Yet many leaders will know in their gut when a hard decision is necessary. Things to consider may include:
- How much of your near-term (<18 months) financial stability is reliant on uncertain revenue.?
- How long will your company survive without either raising capital (in this difficult market) or scaling revenue (in this difficult market)?
If you don’t like what comes up for you when considering those questions, it may be time to support yourself, assess your plan, and rally your board and/or leadership team around some hard questions.
I always coach leaders to start here. It is a bit like putting on your own oxygen mask on an airplane. Only this time, you’re the pilot. You’ll need that mask trust me.
This is a time you very much want to show up as your best self for your leadership team, your board, and your employees. You can’t do that if you’re running on 3 hours of sleep and stressed out of your mind.
Time to remember what keeps you grounded. Sleep 8 hours if you can, eat well, exercise, and lean into whatever grounds you (meditation, journaling, speaking with friends, etc.) If you work with a coach or therapist, ramp up the support during this time.
Assessing the plan
If you are a CEO who operates at arms-length from the financial plan, now is time to change that. Do what it takes to get very up to speed on the way your business is financially operating and the way you are planning for the future.
Many CEO’s outsource their financial thinking, sometimes to a consultant outside the company. That won’t work in a time like this.
Put your head together with whoever runs your financial modeling and take the time to deeply understand what’s going on.
You will want the ability to model various scenarios quickly and effectively in order to explore the options available to the company effectively with the board and/or leadership team.
For a pre-Series B company, I like a straight-forward highly-tactical financial model to make that easy. If you are running a later-stage company, you hopefully have a highly-strategic CFO on your team. If you don’t, and can’t do the modeling yourself, find someone who can help out during this time and who can be highly responsive and available.
Involving the board and leadership team
Many first-time CEO’s I coach come into the role believing it’s the CEO’s job to come up with the plan and then sell that plan to the board and team. While that mode of operating can be effective in the early days (although stressful), it can leave you feeling lonely, overwhelmed, and isolated during crisis. It can also lead to less effective solutions (because you haven’t put as many brains on the problem) and massive challenges with board or team buy-in.
I found myself approaching the CEO job very much this way in my first couple of years as a venture-backed CEO. Every board meeting felt like I was auditioning for my job. There’s a better way.
I coach CEO’s to /invite/ the board into the problem. Your job as a CEO isn’t to solve the problems. Your job is to:
- Rally brilliant people around a clearly articulated problem
- Arm them with accurate, actionable data
- Foster a high-trust, high-care, high-debate environment
Times like this which challenge the very survival of a business are tremendous opportunities to bring your board and leadership team together around the challenges at hand. Even if you haven’t operated in such a collaborative way in the past. What better time than now to ask for trust, collaboration, and help.
Inviting the board and leadership team into the difficult questions has multiple benefits:
- You will feel and be less alone and therefore better able to provide the leadership needed in this time.
- If the board helps to craft the plan forward, they will be more likely to be bought into that plan even if there are future bumps in the road. This is particularly critical when your board members are also your investors as you may need their help contributing to or assisting in future financings.
- If your leadership team participates in crafting the plan, they will be more likely be buy-in to the final plan (even if it’s not exactly what they would like; we aren’t making decisions by committee here), and they will be better able to articulate the plan rationale to their own direct-reports or teams.
Variables to consider
The common advice around RIFs or layoffs is to cut sooner than you think you should and deeper than you think you should. This is not bad advice, but a good plan is obviously more nuanced.
Here’s a helpful list of things you might consider in crafting the go-forward plan:
- How long would you like to ensure you can stay solvent (ie stay alive without more capital or crazy increases in revenue)
- What does our likely financial plan look like? What about a worst-case plan (aka down plan)? What about best-case plan (aka up plan)?
- What are the key initiatives you must man over that time period. Which people are absolutely critical to those initiatives?
- Which roles have you been keeping out of laziness? Which roles don’t have impact that is borne out in the data?
- If you had to cut the team to 5, who would you keep? Then add back from there. Or do the same exercise with 10, 25, or 100 depending on your size.
These questions may be helpful to talk through openly with the leadership team and with the board (either separately or all together).
Once you craft your go-forward plan, you may want to consider whether you are cutting aggressively enough. As much as possible, you do want to ensure you cut enough expenses and staff the first time.
If you complete the layoff with thoughtfulness and care, your team will likely rally around the plan and press forward. If it feels like more cuts are coming and that the jobs of those remaining are also at risk, you’ll find people job-hunting and living in a state of fear and despair.
What matters most in a RIF
A RIF is all about aligning people around a plan, communicating well, and living your company values.
On each of those fronts, the people are what really matter.
The people who are leaving will want and deserve to be treated with respect, dignity, and care. You may not be able to guarantee their job, but you can certainly guarantee respect, dignity and care.
This is a good time to reread your company values with fresh eyes and commit to living those values through this particular time.
The people staying will want to know how those leaving were treated. They’ll ask them, and they’ll ask you. You want to be able to say:
- We provided the most generous severance and benefits we could afford. Here is what we provided.
- We are doing all we can to help people find jobs, including [providing lists of similar companies hiring, paying for resume review assistance, etc.]
Those staying will also want to know how and why the decision was made. The more transparent you can be here about the company’s financial position (the good and the bad) and the process that leadership (or the board, etc.) went through to make the decision the better. People will understand why you couldn’t include everyone in the decision, but they’ll want to know that you were rigorous and thoughtful in the process. And they’ll want to know who was involved in the decision.
You may as well tell them all this stuff; they’re going to guess and find out anyway.
Transparency and honesty are your guardrails here. If you haven’t traditionally shared financials and other data with your team, this may be a good time to start.
Supporting those departing
Have a strong plan for people leaving. When they get the news that they no longer have a job, they are going to be in shock. Their prefrontal cortex, the part of their brain that takes in and processes complex information and that is able to problem solve thoughtfully, is going to be offline. Prepare accordingly.
Outline what assistance you are able to provide. Make sure you have board-level buy-in for whatever benefits or financial assistance you are planning to give.
Things to consider:
- How much severance are you going to provide? Is everyone getting the same? If not, what will decide who gets how much?
- How long will people receive benefits? For most plans, benefits will continue automatically through the end of the current month. Then COBRA is usually an (expensive) option for the employee. Have these details fully pulled together.
- In many states, you must pay all owed payroll to the departing employee on their last day of employment. Have a plan for this. Paper checks or direct deposits queued up.
- Will you provide resume assistance? Job placement assistance? Introductions to or lists of other companies?
- How will you support departed employees (if at all) post departure?
- Are you willing to provide letters of recommendation?
You’ll want to pull all this information together and create a packet for each departing employee. Include a letter outlining that they were laid off and why. Because they were in shock when you talked them through the items above, they’ll want something to read and reflect on later as well as something to share with partners or families.
Supporting those remaining
If you want your company to rally and survive, this is where you must really get to work.
You need the people who are staying to actually stay. And you probably need them to take on more work with greater focus just at a time they are going to be experiencing grief over the loss of their friends/coworkers.
It’s common for people staying to feel varying degrees of ‘survivor guilt.’ They might feel anger toward themselves or anxiety/depression over being the one who still has a job.
They will certainly want to know what the company is doing to take care of the departed employees. They will want to know if they can trust you to take good care of them if their turn ever comes to be let go.
Knowing the company stood by its values in the way the RIF was handled, knowing that people received fair severance, were treated with respect, and that much is being done to help those people bridge to their next job and also find that job will help the retained team members assuage their guilt and concerns.
Choreographing the day-of
As you approach the day of the layoff, you will want to carefully plan every element of the day with your leadership team. Leave nothing to chance.
The things you will want to be certain to get right:
- Controlling who finds out when. You don’t want people finding out via a stray tweet or text. You want to control the care and details with which the message is delivered. For that reason, you need to think carefully about how, when and where each person will find out. This goes for people leaving and people staying. You don’t want people staying (outside key leaders) to have to carry the burden of knowing their friend is losing her job before that friend knows. As much as possible, you want everyone to find out at the same moment. (See below for /special considerations during COVID-19/ as some things are trickier in a remote setup).
- Controlling access to the building, company property, company data, and company communication channels (internal and external). In our RIF we made the mistake of leaving some people’s email access on. While most people were pros, one salesperson decided to send an all-company email that was less elegant. You’ll want to avoid this scenario.
- The packets of information people receive. Equip the departing team members to process this change effectively as the shock subsides.
- Facilitating how departing members will head home. Once the news has been shared, you will want to ask people to head home. The remainder of the day must be focused on grounding the team who is staying. They’re going to need your support and you can’t provide that if you have departing employees hanging around for hours. You might assure departing employees there will be a future opportunity for connecting with teammates and for returning to the office if needed.
- Pick the time and day. I recommend layoffs early in the week so the team has time to reset and feel the new normal. First thing in the morning is preferred to give you the day for taking care of the remaining team.
Moving the team forward
Once departing team members have left, you will want to pull together the remaining team. This is a good time to talk everyone through:
- The rationale for the decision
- How the decision was made
- Steps being taken to support departing employees
- How secure (or not) the jobs are of people staying
- The go-forward strategic plan (where are we going from here?)
- The go-forward financial plan (do we have the resources to get there? How at risk is the business of dying? Do I need to start job searching?)
Allow whatever time is needed to answer /every/ question the team has.
If possible, get the team out of the office and hanging out together. Go to a park or the beach. Go to a bar. Go to lunch. Definitely don’t stay in the office and work.
While the team is out of the office that afternoon, you’ll want to have someone in charge of resetting the office in their absence. It could also happen that evening if needed. But you don’t want the team returning the next day to half-empty desk pods. It’s worth the time to spruce things up and reorganize so that the space is well-designed for the remaining team.
The next day, get back to work. Orient the team(s) as needed around the work at hand. Let people begin to feelthe new normal and feel that it’s ok. That things will move forward.
You might add in some temporary team rituals to create space for people to reset mentally and to process the grief of losing their colleagues. It might look like a weekly all-hands where people simply check-in on how they’re doing. Or share pains and gratitudes for the week.
I am a big fan of offsites. If you have the ability, getting the team out of town and living in a house together for a couple days can really help with a big reset like this. Not the day after the RIF but in the week or two after. If you need some guidance on how to spend the time or ideas for how to guide your team through the specifics of your situation, please feel free to reach out to me.
Special considerations during COVID-19
If you are going through a RIF during COVID, you are facing some very unique challenges. But the principles above will work.
The main challenge over Zoom is providing the level of empathy you are striving for to both remaining and departed employees. It will also be harder to pull together the remaining team effectively and allow them to feel cohesion as the go-forward team. You will want to be extra attentive to how this new team connects and communicates in the immediate days post-RIF.
In the immediate days following the news, you may want to normalize for team members that whatever they are feeling is ok. Some will feel like leaning into work as a distraction. Or as medicine. Others may need to work less in the first week to allow space for grieving and adjusting to the new normal. Because you won’t have as many options at your avail for providing a shared processing experience (no dinners, offsite, etc.) you may need to empower individual people to provide their own care in whatever way is most effective to each of them.
Given the remote work setup, you may want to provide an extra layer of support in the form of an external coach or therapist. You may offer budget for personal mental wellness for example. And ensure through it all that each team member knows that you and the other leaders are willing to make one-on-one time anytime. Over-communicate and over-support.
A final note of love and empathy
Whatever the particulars of your personal and company situation, I want to say as a previous founder and CEO that I am so very sorry you are having to walk through these very difficult circumstances.
These are not the days you dream of when you are braving the early days of a new startup.
There is nothing easy about this. And it fucking sucks.
But you can do this. And these are important moments in your journey toward being the leader and human you were born to be. You are in great company of leaders who have gone ahead of you who also had to make impossible decisions in the face of circumstances far outside their control.
Remember to put on your own oxygen mask first. And a big hug from where I’m sitting writing to where you are today reading.