Layoffs Done “Right”

The recent wave of layoffs within prosperous tech companies has been a wake-up call, especially for younger professionals who have not experienced previous economic downturns. However, those familiar with cyclical business trends or the relentless pursuit of “shareholder value” are neither shocked nor surprised.

Why Layoffs Happen

Layoffs often signal that a company’s executives believe there’s a pressing need to recalibrate the balance between the workforce and the firm’s mission or products. This misalignment could occur due to various factors:

  • Unsustainable Business Model: In simple terms, the revenue generated doesn’t justify the costs of product delivery.
  • Product Misalignment: The company may be investing in products that don’t align with its core mission or that are not effectively serving its customers.
  • Irresponsible Hiring Practices: During rapid growth phases, some companies might hire recklessly, resulting in an inflated workforce.
  • Overemphasis on Shareholder Value: When shareholder value becomes the primary yardstick for performance, both employees and customers suffer.
  • Significant change in Market: A company workforce might have been scaled appropriately when a significant change in the economic environment or industry results in scaled back growth. This is often what companies say, even when the previous issues was the primary driver.

The Consequences of Poorly-Executed Layoffs

A common mistake is implementing across-the-board cuts based on arbitrary targets, such as reducing the workforce by 10%. This fails to consider that not all teams contribute equally to company misalignment.

Even worse, when layoffs are solely used to appease market expectations, they often become a recurring issue, indicating a lack of strategic depth in management decisions.

The Ripple Effect of Multiple Layoffs

Frequent layoffs can be corrosive to employee morale. After the initial round, those with the most employment alternatives often exit, leaving the remaining workforce vulnerable and increasingly disengaged. The worse mistake the leadership can make is do a light cut, hoping that more cuts won’t be necessary. It’s better to cut deeply once, with confidence that future cuts won’t be needed, though there is still the risk the company / division will completely fail.

Caveat: Multiple layoffs is not an indication that the first layoff wasn’t done well IF the following layoffs were due to a new change.

When Layoffs Are Necessary

In unavoidable situations, leaders need to do more than just cut costs; they must refocus the company on core competencies and critical success factors. A well-planned approach can enhance the leadership’s credibly, and can signal that further layoffs will be unnecessary.

Best Practices for Conducting Layoffs

Effective layoffs prioritize human dignity and clear communication. As outlined in TechCrunch’s article on How to Conduct More Compassionate Layoffs, the bad news should be delivered personally by a familiar and respected authority figures.

A Case Study: Tellme Networks

Perhaps one of the most conscientious layoffs I’ve experienced was at Tellme Networks. Founded during the tail end of the DotCom bubble, Tellme aspired to revolutionize voice-interface technology by joining the power of the Internet, the ubiquity of the phone, and the ease of voice interfaces long before smartphones and voice assistants were common.  Within two years, the company raised $250 million and built a team of over 200. When the DotCom bubble burst, ad revenues plummeted, and the enterprise business was going too slowly given our staffing. The company was on track to run out of money within 18 months.

Strategic Pivot

Faced with this dire situation, Tellme’s leadership undertook rigorous planning to pivot towards a more sustainable, enterprise-focused model. I believe this was when we started using the RIFLE methodology, (SBS case study) though that might have come shortly after the layoff.

The executives scrutinized every team’s alignment with this new focus and restructured accordingly. Initial target was a 50% staff reduction. Once the analysis was completed, teams were marked to shrink, grow, or eliminated in service of the new focus. In the end, around one-third of the staff were to be laid off, with several others moving to new roles.

Transparent Communication

The exec held an offside with all the managers a day before the layoff was to be announced. Thankfully, there were no rumors of a pending layoff before the offsite. The leadership shared the company’s financial outlook, the planned pivot, and the need for an extremely painful layoff. The managers were equipped to answers questions. help people process the upcoming changes, and asked to commit to help make the change proceed smoothly.

On the day our of the layoff, people who were to transition roles were individually called into a meeting with their current manager.  They were told about a new role that their current manager hoped they would consider. Then they were told  that a major restructuring was going to be announced later in the day which was going to result in their old position being eliminated. They were highly valuable, and everyone in the company hoped they would stay on in a new role. It was hoped that being informed that they still had a job would lessen the impact of the changes.

The individuals who were laid off were called into 1:1 meetings. They were told that the company was pivoting due to a failed business model and that if something wasn’t done, the company would be out of business in less than 18 months. They were told that being laid off had nothing to do with their performance, and that many of their fellow employees were losing their jobs due to the pivot.

Once the people who were most directly impacted by the layoff had learned about the changes a company all hands was called. This meeting, and future all-hands is discussed below.

Respected Treatment

People who were to be laid off were personally told by someone in the company’s leadership team they personally knew.  This was not a task that was handed off to HR. People were told “Your performance was great… the problem is the company isn’t going to succeed in the current form. We had to make some really painful decisions to drop a lot of what we are doing.”  The discuss was in a private location so the affected person didn’t have to worry about other people seeing their reaction. They were free to exit without having to interact with anyone, and come back later to retrieve their personal items. If they didn’t want to have to come back, they were free to grab their personal items before heading out. No one was “escorted out”.

Encourage Those that Remained

Once the people who had been laid off left the building an all hands was called. The key “talking points” of the meeting:

  • Even though we had raised a massive amount of money,  we would run out of cash before achieving profitability. Without a change, we would “fly the plane into the ground” in less than 18 months.
  • The company was pivoting to exclusively focus on servicing enterprises, initially targeting large customers we could completely delight. The execs believed this strategy would result in the company being cashflow positive before we ran out of money.
  • Hadi, one of the company founders and the VP whose teams were most effected by the changes would be resigning. His organization would now report to Matt who was better prepared to help them success given the new focus. Hadi made it clear he still believed in Tellme and would continue to be involved as an advisor.
  • An acknowledgement that this was super painful. We all had friends and coworkers who were laid off. They were great people. No one deserved this.
  • That all the options the people had earned… even if they hadn’t hit a vesting cliff, were vested, paid for by the company, and given to the people laid off.
  • We should do two things from our colleagues that were just laid off:
    • Use our personal networks to help them find jobs.
    • Make Tellme succeed so the hard work they put in (and the stock they now held) would increase in value.
  • Everyone was given the rest of the day (Friday) and weekend to process, and were encouraged to come back Monday ready to engage in the new plan and see success in our work.

The transparency and respect for employees continue in the weekly all-hands. Each week a graph was displayed that showed past / current / projected cash on hand, revenue, and expenses with commentary from the CFO about how we were executing compared to “the plan”. Everyone knew the goal was to get to cash flow positive before we ran out of cash and how the company was doing. Once a month our CFO would give a mini-course to help everyone understand how businesses function from a financial perspective

Poorly Executed Layoffs

In the last few months I have been stunned by the poor execution of layoffs at Amazon and Google. I expect other companies as well. Some people have noted Tellme was able to execute well because it was small. While size makes it easier, I saw layoffs (or furloughing without layoffs at HP in the 1970s) done by large companies in a compassionate and thoughtful manner.

I am deeply troubled by what I have heard from people I know at Google and Amazon. This included people who were laid off, who have to lay people off, or weren’t directly affected by the process but are now tried to figure out where things will go from here. These have been individual contributors, managers and directors.

  • The people layoff off, nor the people left, lack at clear sense how the company is going to be changing other than belt tightening.
  • People often learned that they had been laid off because as they were performing their jobs (like carrying for production – customer facing services) their account privileges disappeared. In other cases they couldn’t access the building when the came to work in the morning. Minimally I would have thought schedules would have been arranges so that the person who was to be laid off wasn’t the primary on-call / on-duty person for a service.
  • The people who were tasked with delivering the news were not well prepared and were expected to follow a set script. In some cases an unknown HR person delivered the news. Even when the person who was being laid off had a decade long employment record and significant time as a colleague of the person delivering the news they often didn’t have any sense of a personal connection.
  • The people who were laid off have generally not received follow-up from their former managers. There are exceptions. I know several of my friends who are managers have continued to care for their former team members… but most of the people I know who were layoff off have not received this sort of support.

We can, and should be better than this. To the people who have been treated poorly… I am so sorry. I pray you find a job which allows you to use all your skills and that your next company will treat you will the appropriate respect and care.

Caveat: Some of these companies decided to execute the layoff in what appeared to be a thoughtless manner due to their concerns about lawsuits and regulatory compliance. They fear miscommunication would lead to discrimination lawsuits, accusations of insider-trading, etc. This is why cuts were selected at a highly level and communicated in a fairly scripted manner. Personally, I would like to think we could treat people more like grown-ups, such as what’s called for in Netflix culture document, but not every company is built this way.

Key Takeaways

Layoffs are inherently challenging. Handling layoffs responsibly requires transparent leadership, a strategic focus, and a commitment to treating everyone involved with dignity and respect. Through ethical practices and clear communication, companies can navigate these difficult phases while maintaining their organizational integrity.

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