Layoff Reactions of First-Timers
1. First Reaction: Delay
Few first-time founders know when to initiate a layoff. As the shock of the bad situation sinks in, the fear blocks the CEO because few are prepared to do a layoff. Instead of acting promptly, they will wait too long before cutting headcount. At the first sign of cash flow trouble, I have witnessed again and again that the first-timer will attempt to minimize the pain by making no big decisions. Instead the CEO will act slowly, behave tenderly with employees. The hope is that the trouble will go away, by some miracle. I’ve listened more than once to a rock star founder express profound fear that he is about to wreck the personal lives of employees if he lays them off. Inaction results and cash burns faster every day.
2. Second Reaction: Coverup
Compounding the situation is a common behavior: the CEO withholds bad news from employees, the board of directors, customers and suppliers. When they find out (and they will), trust is damaged and relationships become more tenuous, making operating a startup all the more challenging. The result is a distortion of the seriousness of the real danger, plus the delay reduces the time available to act to get the company out of its mess. Even worse, I’ve had board members lament that if they had been alerted, they could have stepped in with lots of help that could have avoided a lot of the damage done. Similarly, I’ve found customers and suppliers were often quickly alerted and gladly cooperated and adjusted in the startup’s favor. Coverup, delays communicating bad news make things worse.
3. Third Reaction: Magical Thinking
“Hope lies eternal” is the old saying that I’ve found is deep in the genes of the entrepreneur. Inevitably overly-optimistic, when the trouble arrives, entrepreneurs are prone to remain unrealistic. As I’ve watched startups heading for trouble, moving from the warning stage into the gets-serious stage, first-timers freeze, do not take action. They remain hoping, with fingers crossed, that their boat will not sink, the storm will end before a layoff must be done. Psychologists name that “magical thinking.”
4. Fourth Reaction: Avoiding
It’s human to want to avoid pain. However, the solution is not about finding cheaper rented space. Or ending break room free food. Or flying less. It’s about cutting a huge portion of your spending – how about fifty or eighty percent? That means cutting a lot people, re-organizing the entire company. Yes, that means you have to decide which friends and stars you are going to layoff. Painful – but terminating the business is much worse.
I wish you The Best on your Adventure!