Some Thoughts About Layoffs
Will companies do them in the right way?
Layoffs are a sad but inevitable part of every economic downturn. For many tech employees, it’s also something they haven’t seen before given how the tech sector boomed virtually nonstop since 2009 all the way through the pandemic.
And thanks to more than a decade of venture capital froth, many younger tech companies have never had to think hard about their expenses. Thus, it will not be an easy transition. An organization that’s optimized for growth, spending, and hiring is obviously not designed for shrinking and thrift. And many of these companies likely don’t have the right people in place to properly go into lean mode.
When your finance team is actually your business development team and your COO was brought in from another unicorn to 5X the company, it’s unfair to expect them to also be highly competent at setting up the infrastructure and processes needed to ensure cost discipline and proper return on investment.
I expect many layoffs will be done haphazardly:
- What’s the least amount of people we can cut to hit an X% expense reduction?
- Let’s just fire the last N employees that we hired.
- Which parts of the org seem to be the most chill these days (i.e. where is there extra slack)?
- Which projects are the most uncertain or furthest away in terms of paying off — can we just fire whoever happens to be working on those?
- Let’s lay off everyone with a performance rating of X or below.
But this often results in throwing the baby out with the bath water. Just like companies over-extrapolate the good times and over-hire, they also over-extrapolate the scary times and over-fire (or fire the wrong people). A layoff represents a fundamental change to a company, and doing it properly and thoughtfully is as important as any product or vision pivot. It’s the company and its leadership realizing that it was operating sub-optimally and course correcting. In video gaming terms, it’s like reverting to a previous save — but unfortunately with much more pain and consequences for those involved.
But if you’re stepping back to a previous state, you need to make sure that that previous state was actually a good one. That the makeup of the resulting org and the folks that are still in place are what’s needed to march forward. Which is very hard to do when you’re facing stress from all sides from your investors, bank, customers, suppliers, and your own employees.
Knee-jerk decisions made under stress and time pressure are rarely optimal ones. People just aren’t hard-wired to be thoughtful and reasonable under those situations. That also represents an opportunity for those that can somehow manage to be. Just like companies that planned for a rainy day (less short-term debt, extra cash set aside, contractors that can be temporarily let go, etc.) can now operate with a lot more financial breathing room, companies that are thoughtful in how they restructure (or even whether to restructure or not) can use a recession as a chance to leap ahead of their suddenly conservative peers.
