There is an old adage “You’re not a real startup CEO until you’ve missed payroll.”
That sounds draconian to first-timers, but veterans expect to encounters that trigger a sobering decision: sharply cut the burn rate by cutting a significant number of employees.
For first-timers, there will be intense emotions triggered in you when doing your first layoff, and I highly recommend you get prepared for how to do a layoff well.
Layoffs are encounters that are never forgotten. They trigger soul wrenching emotions. That’s reality.
And a layoff can save a company for a comeback.
Now the good news: There are time-proven ways to prepare for and execute a layoff well. I’ll go over those with you here. I’ve been through many such events, each time it was always painful for everyone.
Expect Intense Emotional Pain
Missing payroll and or doing a layoff is extremely painful emotionally, starting with the founder CEO. Those emotions can also trigger physical pains, some life-threatening. Plus, the pain is felt inside everyone in the company, as well as customers and suppliers and investors. When the media gets wind of the layoff and the social media is flooded with the bad news, the psychological pressure on management rises to red hot levels. No one is immune. I’ve worked with men who are mentally as tough as steel and watched them agonize over a coming layoff. No one was an exception among those I’ve experienced.
I’ve found most of the layoffs occur because of the vast number of unknowns and uncertainties inherent in a startup. In other words, there are so many things that can go wrong in a startup that very often many happen at the same time. Then cash burns unexpectedly fast, and a crisis is born that necessitates “downsizing” and thus the layoff of lots of valued employees and contractors must be done before bankruptcy arrives.
Every startup hits the wall sometime and has to cut its planned burn rate. Not all such moments require a layoff, but most do, in order to survive. I do not think any new enterprise is immune. Spotting the coming trouble in time may give management enough time to begin slowing hiring, doing less ambitious projects. But I think startups are most likely to be caught by surprise.
Even if your startup appears be doing fine by your metrics, it’s not immune to a layoff. All enterprises are subject to the sudden arrival of uncontrollable events such as the effects of a weakening economy that quickly dries up venture financings. Think of the effects of the trade war between China and the U.S. Or COVIN-19 coronavirus. Or a recession that starts just when you launch your first product. Whatever the reason, the action required of a startup CEO quickly becomes clear. the founder: The CEO must cut deeply – or face running the fledgling business into the ground – dead and buried.
It may surprise you to know that a layoff can happen from hot success. Here is a real example from my experience.
I watched a hardware startup launch and begin online sale of its first product. Management was expecting a gradual rise in sales. Instead, on the first day the orders rocketed up, a tsunami size of unexpected customers, far beyond the most optimistic dreams. The tiny startup was slammed by the pressures to deliver. It experienced a near meltdown. Every IT system crashed, orders were double-shipped in many cases, while other customers paid but never were sent the product. The situation grew worse when the media got wind of the disaster and spread it virally. The ambitious company had to concede defeat for round one, do a layoff, retreat and regroup. Fortunately, its leaders were able to get the company repaired and re-emerge, returning to a march that led them to become a great new enterprise.
I wish you The Best on your Adventure!