Every startup hits the wall sometime and has to cut its burn rate in order to survive. No new enterprise is immune.
There is a good way and a poor way to do a startup layoff.
Here are some tips from veterans of the startup battlefield.
- You never cut headcount too early. You will always be late. Entrepreneurs are genetically overly optimistic. It is in the genes. They believe they will figure out a way to avoid the painful cuts of employees. So they are always late for the layoff.
- You never cut headcount too deeply. You will always cut not deeply enough. The cuts will seem to produce a company impossible to manage, unable to compete. So you "save" the best of the best and you end up with more than you should have.
- You will react to pressure from your board. Your investors will especially be quicker than you to tell you to get going with the cuts. They have seen this before. One reason they are on the board is to give you perspective and wisdom. Listen to them, even if you don't want to.
- You will end up with a different company to manage. It will seem strange to you. The surviving set of employees will behave differently, will be able to do less and will respond to you in different ways. Their psychology will be changed because of the layoff. It may be good ("At last we got rid of the deadwood!"). Or it may be bad ("We are so lean I can't see us surviving for much longer.").
- You will need twice as many months to turn the corner. Your expectations for a return to the good days will be too optimistic. So use The Rule of Two: double the number of months you expect to need to get to the upward turning point. Plan on that and you'll not be disappointed.
- Your process is as important as the act. You must proceed to tell all the stakeholders and do so in a concerted, planned process that is very professionally managed. How you treat those laid off will be as important as how you treat the those that are not. You cannot avoid the pain but you can reduce it. Everyone needs to know about the layoff at the right time. Plan it in detail. Execute it with precision. An experienced HR professional can be an invaluable asset in dark times of a layoff.
- Your personal support group is important for success. It is lonely at the top. You are not excluded from the human race, believe it or not. You will feel depressed, disappointed and defeated during the process. To avoid dangerous compensation behavior (alcohol, drugs, co-dependency sex, rage outbursts at people you love, or other acts of foolishness), gather family and friends around you. It is a good time to check in with your religious leader. Tell all of them to assist you during the layoff process. They must meet with you, be brutally honest and available on short notice. You are not superman, you do not walk on water, nor are you expected to.
- You must be realistic. Your planned layoff may not succeed. You may end up having to shut down the startup. If you look at your modified company plan and think it will not work, then it may be time to skip the layoff. Just shut the business down, now. Avoid the pain of six more months of agony and the inevitable funeral.
- Your character will emerge during the process. The pain of a layoff will show you who you really are. The real you will show up, loud and clear. That will be who you are deep down inside. Your core values and beliefs will be what you reach for while you do the layoff. What you see may surprise you. Or even scare you. That is one reason for gathering your support group around you while you go through the layoff.
- Beware of dangerous people. The true character of employees will be triggered by the layoff. Some people go home, get guns and return to shoot CEOs. Others less violent will be out to get you into deep trouble. That includes sabotage of software and websites, theft of strategic plans and equipment, and much more. It can happen in any company. That is why you must wisely plan the security aspects of your layoff.
- Talk to CEOs who have done layoffs before. They are the best sources of the how-to part of this painful process. Listen, digest, plan and act, using their tips to do a better layoff. Their experiences are priceless.
BOTTOM LINE: All startups face sudden moments of rude confrontation that signal that a layoff will be needed, ASAP. It never comes at a good time. It is always very painful to a lot of people, including the CEO and core team of a new enterprise. It is deeply psychological, testing your character to its core. It can determine the life or death of your startup (and your position as its leader). Yes, your objective is to be so successful at planning and executing that plan that you'll never have to arrive at a moment of layoff. But you are not going to get there. That is magical thinking. So get ready. Get the people you need to assist you lined up, ready to act. When you can do a great layoff, you'll have added a powerful element to your personal unfair competitive advantage.
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