Layoff lessons: Four things I wish I knew

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A few years ago, during the first string of layoffs in tech, I started writing a post on how to plan a layoff. They weren’t as common as they are now. I stopped halfway through because I naively thought, “oh, all the layoffs are over.” And then they just kept coming. Soon, I found myself sending the draft to more and more founders and Glue Club members, so I finally decided to revisit it. 

In the interim, a lot has been written about layoffs and how to do them. One great example is Beth Steinberg’s piece in the First Round Review. I strongly agree with her advice on alternatives to layoffs, what to offer "leavers," and not forgetting about your customers and partners.

Because I agree with so much of what others have written about the process of doing a layoff, I am only going to share a few additional things I wish someone had told me before my first layoff.

I know a lot of people would say that no company should ever have to do a layoff. And while I think that would be lovely, it’s not realistic. Circumstances change even under the best management. Nobody could have predicted what happened in 2020 — companies went from healthy revenue streams to zero overnight. 

That said, there are definitely many, many layoffs happening now due to mismanagement. One of the things that has forever infuriated me in tech is persistent over-hiring and growth that isn’t grounded in actual business strategy. I think many of the layoffs that have happened over the last couple of years were the result of avoidable over-hiring. It takes a lot of disciplined management and disciplined growth to not end up in this situation in the first place. 

Regardless of how the company got into the situation, layoffs are a terrible experience for everyone on all sides – the planners, the leavers, and the stayers. This is written for the planners because you have some control over trying to make your layoff the best version of a bad situation, which is what I want to help with. 

Without further ado, here are my layoff lessons.

1. Prevent multiple layoffs by asking hard questions about your strategy NOW

The golden rule of layoffs is that you NEVER want to have to do 2. Among other reasons, you erode all trust with the employees who stayed after the first one.

To prevent double layoffs, you need to:

• Cut to what you think is bone, because after the layoff you usually find out it’s still not bone.

• To do this, you need to ask hard questions about your business strategy. Because you probably need to reassemble the skeleton.

Many layoff conversations emerge from a financial constraint – “We need more runway to get to our next raise so we need to find $Xm.” That leads to a % of people to cut, in addition to other expenses.

But the answer to your problems usually isn’t to just blindly cut people. You need to change something fundamental about what the company is doing. As a warning sign, if you’re only saying “We need to cut 20%,” you’re very likely having the wrong conversation. 

It is fine for the conversation to start as a financial one, but NOW is the time to ask the hardest questions you can find about how you got into this situation in the first place and whether you are on the right path. 

It’s hard to admit that your product isn’t working or that your Series B business should actually be a 20-person seed-stage company because you don’t have product-market fit. But it’s WAY more heartbreaking to try to do an earnest, to-the-bone layoff and still have no viable future on the other side.

Things you should ask:

• Are there things you should stop doing? 

• Lines of business you should cut? 

• Should you change your go-to-market strategy? 

• Is now the time to think about a bigger pivot?

• If you are a “people-heavy” business (sales, teaching, store fronts, etc), should you shift your strategy to software? How would you do that? What would it take to get there?

Answer questions like these first and THEN return to the financial planning. Your financial scenarios will be stronger, as will your final solution. 

Part of the reason we are seeing so many double layoffs (or triple 🙁) is because organizations did the first layoff financially and the second layoff strategically. 

As I wrote in addition vs. subtraction, organizations are bad at subtraction. Watching founders who are doing their first layoffs, I see the pain because all they’re doing is subtracting people from what they were doing yesterday. It sucks and it hurts. Instead, try an exercise of rebuilding the company from the ground up. It often leads to a better result and forces you to ask the toughest questions. (This is essentially the same argument that people use for zero-based budgeting versus traditional budgeting.)

Don’t miss the opportunity to really refactor your organization and your strategy. 

2. The stages of grief are normal

Laying people off is one of the worst experiences you will have as a leader, even if it’s the right decision. 

It is normal to go through the stages of grief: denial, anger, bargaining, depression, and acceptance. 

As a people-focused empath, I tend to spend a lot of time in denial before switching to acceptance with these types of decisions … So my only advice is to give yourself the time to get to resolute acceptance before you sprint forward with planning, and certainly before you talk to too many people.

The decision to do the layoff has to be your own; you need to take accountability for designing it well and handling the communication well. Get to acceptance so you can be a strong, clear leader for everyone else.

Part of designing the process of a layoff requires realizing that every single person in the company will go through their own stages of grief — from the next set of leaders you tell to the employees that are staying, to the employees that are leaving. So your job is to get to a solid psychological state of acceptance, then help other people through their own stages. 

Watching Google do its first layoff in its 20+ year history was like watching a massive organization go through the stages of grief – lots of anger, bargaining, etc. Even in a smaller, younger org, you should expect the phase after a layoff to be rough. It often takes about a month or more for things to stabilize after a layoff – meaning it takes a month for most people in the company to get to a stage of acceptance.

Side note: Even though you are going through your own emotional journey in the process of doing this layoff, you should never (ever ever) make this about you. Yes, it’s hard for you, but you know who it’s harder for? The people that are having their job security yanked away making it scary and uncertain for them and their families. The people who bet on you and your company who you are showing the door against their wishes. The people who believe in you and love their job but don’t have a choice to continue working with you.

One of the big mistakes we’ve seen leaders make over the last couple of years in talking about their layoffs is putting their grief at the center. Even sentences like “this is the hardest thing I’ve ever had to do” are unhelpful. Keep your focus, and the focus of your messaging, on everyone else. No one cares about your pain, real though it may be.

3. Make sure you focus on the stayers

When you’re doing your first layoff, a lot of your time, energy, and angst is going to funnel into the people that are leaving and how to handle those conversations. Because of that focus, the thing we often miss is ensuring that someone is thinking hard about how to motivate the people that are staying. The “stayers” are actually much more important for the future of the company. That isn’t to say you shouldn’t do everything in your power to do right by the “leavers,” but you need to find a way to invest equal or greater energy into planning how to help the “stayers” get excited about the future. 

It is a good idea to give stayers time to mourn and be angry. Being overly cheerful or overly optimistic too quickly can just make those feelings worse. But within the first couple weeks, your job is to help them move through to acceptance. 

A lot of that planning is all about answering the question, “Why should I stay?” And maybe, “Why should I believe you that things will be different going forward?” Ideally, it would even be “Why should I be excited about the future?”

My basic recommendation is that as you embark on organizing your layoff, be sure that one leader owns all the planning around “stayers”:

• The “stayers” all hands the day after the layoff and maybe the one the week after too

• Scripts for 1:1 conversations with key employees

• Any compensation or incentives for stayers

• The offsite to get the company together sometime after the layoff

You could have the COO focus on stayers and the head of People focus on leavers. The division of responsibility ensures that neither overshadows the other. Despite the separation, during your planning, it’s good to remember that they’re also connected: stayers will be concerned with how you treated the “leavers.”

Sidenote: 

As tempting as it might be, don’t leak the layoff to your favorite or highest value employees early. You should basically assume that every person you tell will tell 2 other people. The more people you tell increases the chance that it will leak. 

Generally, you need to plan the layoff with as few people as possible. Sometimes, that’s just the CEO, CFO, and an analyst for a while. Take the time to figure out exactly who you need on that team before you talk to ANYONE.

Increase the circle carefully and as close to the announcement as possible. Basically, you want the time between someone hearing about the layoff and knowing they’re NOT part of it to be measured in minutes. Leaks can cause great employees – people you want to stay – to start searching for other jobs.

4. Your first design principle is “do my best to treat people with dignity and respect while protecting the company”

You cannot do a layoff without people feeling hurt, angry, betrayed, etc. No matter how hard you try, a layoff will never feel or be “good”; you’re honestly making decisions between different versions of bad most of the time. That said, while you design your layoff, you can hold on to a few things that do make a big difference. Those are things like: 

• You can ensure people are treated with dignity and respect

• You can handle things the best way you know how (or pick the best path among bad options)

• You can take ownership and accountability both for what got you here and also for the way things are handled

Unfortunately, over the last couple of years, we have seen a lot of examples of leaders making really callous or thoughtless decisions as they’ve done their layoffs. While, again, there is no “good” version of a layoff, my standard guiding light when I’m doing this or helping others do it is that you want to be able to get to the end of it and say, “I did my best.” I did my best to take care of people and do what is right for the company at the same time. I did my best to treat people the way I would want to be treated. I did my best to build a better, stronger company on the other side. I did my best to ensure we will never have to do this again.

Ok, final point. Don’t end up in this situation in the first place :) 

When startups do headcount processes, they are often lazy. You ask leaders, “How many more people do you need?” And guess what comes back… big numbers. 

Discipline around choosing what *not* to do can help you avoid over-hiring and, eventually, layoffs. It’s essential to train leaders to be thoughtful about running the whole business and how their part fits in. That sounds like:

• Your team costs $Xm. Our revenue is $Xm. Let’s justify that cost. 

• If I gave you half of your headcount request, what goals would you *not* be able to accomplish?

• Rejustify every member of your team based on what we need to get done next year.

• What are other ways we could accomplish this without adding full-time people? 

• Our total headcount is only going to grow by 20% next year (hiring cap). Justify why you should get X%. 

One of the hardest things about raising venture capital to run a company is that when the first check hits your bank account, you feel like you have unlimited time and money. People and servers are usually the biggest dollar amounts in a software startup’s burn rate. Assuming server usage is relatively fixed, the single biggest place you need to have cost discipline is around people. 

Ultimately, your goal should be to never have to do a layoff. To do that, you need to learn to spend wisely and to run a company that has discipline at its core.