Chapter 21: 310 Desks — On Layoffs
In the fourteen months after acquiring Weblastic, integration with SparkLight Digital proved difficult. Talk about oil and water. The two cultures couldn’t be more different; issues arose immediately. Within weeks of acquisition, Weblastic’s general manager, Aiden McPhee, prevailed on you to build a wall between the two organizations at the San Francisco office. Against your better judgment, you agreed to do it.
What a mistake!
You never before made a decision so universally and unceremoniously rejected. Original SparkLight Digital employees were especially scandalized. Even though the post-acquisition reorganization placed them inside the newly named SparkAction CRM business unit, separate from the Weblastic business unit, the wall symbolized a cultural divide — and a direct attack on the open, transparent, empowered culture so profoundly valued at SparkLight Digital. As for Weblastic business unit employees, they felt like second-class citizens. Soon they coined a new name for themselves: “East Berliners.” Within a week, a mantra emerged, echoed in the hallways and lunchrooms by many employees in both business units: “Tear It Down. Tear it Down.”
You talked it through with your CEO coach, Rohit. You wish you sought her counsel before you built it in the first place. “It’s really quite simple,” she said. “Are you one company or two?”
“One,” you said.
“If you are one company, you can’t have two cultures. Now the only remaining question is, which culture will you keep?”
And so the wall came down, despite Aiden McPhee’s protestations. By noon that same day he left, never to return.
The next morning, you called an all-hands meeting. The SparkLight Digital employee population occupied eight offices — in San Francisco, Kansas City, Bengaluru, and five regional sales offices. You booked the large conference room on the first floor of the KPMG building, 11 floors below your office. The two hundred local employees joined you in the conference room. Everyone else connected via video conference. The mood in the room was tense as you stepped up to the podium.
“When Joe and I founded SparkLight Digital eight years ago, we made a decision early on that we would live by certain values. We committed to each other, and to our earliest employees that our values would never be just words on a poster — they would mean something. I am here to apologize — because I have violated our values. SparkLight Digital is built on trust, openness, and honest communications. We are a company that believes in collaboration and wants to hear all thoughtful opinions — whether they are expressed by a Vice President or an office clerk. Open, transparent, direct feedback with a decision-making approach that is empowered and collaborative is core to who we are. On the day I built that wall, I insulted every employee who ever believed in our company values. It was wrong. Please accept my apology.”
“Seven weeks ago, we welcomed into SparkLight Digital thirty-five new employees. Can the employees in the Weblastic business unit please put up your hands? Thank you for all you do. You are talented, you have built a great product, and I know I speak for everyone here that we are so proud to call you part of the SparkLight Digital family.”
“Weblastic had a unique culture of its own. Within that culture, you achieved great things and built one heck of a compelling product. The cultural history of Weblastic is to be honored. But we have learned the hard way that it’s simply not possible for a company of our size and stage to have two separate cultures. Abraham Lincoln once said that a house divided against itself could not stand. I agree.”
“So today I am stating unequivocally that all SparkLight Digital employees will live within one culture, embodied by our company values. We are transparent. We are empowered. We are results focused. We support continuous personal growth. We seek consensus wherever possible. These are all attributes of what we call the SparkLight Digital Way. If you can’t live inside this culture, I completely respect that — just say so, and we’ll help you pursue opportunities better suited to you elsewhere.”
“My hope is that for most of you in the Weblastic business unit, you’ll give us time. I want to learn more about you. Your discipline and operational efficiency are impressive, and I hope you will teach the rest of us how you do it. I ask in return that you allow me to teach you the SparkLight Digital culture. It’s a bit quirky, but I am confident that in time, you will come to value it as deeply as the long-timers do.”
“One more thing. I am announcing today that Ashley is the new general manager of the Weblastic business unit, reporting to me. Shaleen has been promoted to senior product director, reporting to Ashley. Ashley and I have both agreed that the walls, both physical and metaphorical, will come down for good. From this day forward, we are one culture and one company.”
As you stepped down from the podium, there was a moment of silence, followed by a burst of applause. A few people stood up, then everyone. To the escalating sounds of a standing ovation, you abruptly turned away. No one should see your tears.
At 10 AM on January 29, 2014, Leigh Zarelli Lewis, the COO of Patch (a media website) held a conference call with hundreds of employees who received an invite. Here is what she said:
“Hi everyone, it’s [Patch COO] Leigh Zarelli Lewis. Patch is being restructured in connection with the creation of the joint venture with Hale Global. Hale Global has decided which Patch employees will receive an offer of employment to move forward in accordance with their vision for Patch and which will not. Unfortunately, your role has been eliminated, and you will no longer have a role at Patch and today will be your last day of employment with the company . . . thank you again and best of luck.”¹
Reactions were immediate, including this one:
“I was hired in 2010, survived two rounds of layoffs but not the third. I was told middle managers in editorial were on a call earlier this week and being asked about which local editors are worthy. Based on info from HQ, I had one of the top sites in all of Patch for the past two years, but now I’m on the outs. Sounds like politics and not performance is the deciding factor for most, if not all, of us.”
Contrast this with the October 2008 layoff at Zappos.com. CEO Tony Hsieh and his executive group were forced to lay off 8% of the company — 135 jobs — due to the impact of the recession. When he announced the layoff, Hsieh was transparent about the reasons:
“This is one of the hardest decisions we’ve had to make over the past 9.5 years, but we believe that it is the right decision for the long term health of the company,” Hsieh wrote in an email to employees and posted on the company’s blog.
“I know that many tears were shed today, both by laid-off and non-laid-off employees alike,” he continued. “Given our family culture, our layoffs are much tougher emotionally than they would be at many other companies.”
In his letter, Hsieh reported that Zappos would not reach its 2008 target of $1 billion in sales. Although sales were still expected to be higher than 2007, Hsieh explained that investors directed the company to begin cutting costs.
Zappos paid laid-off employees through the end of the year, and employees with three or more years of tenure received additional pay. All terminated employees also received six months of health coverage.
“In doing all of this to take care of laid-off employees, we expect that it will actually increase, not decrease, our costs for 2008, but we feel this is the right thing to do,” Hsieh wrote.
Hsieh encouraged employees, both the terminated ones and the ones that would remain, to use their judgment in how they communicated the news via their personal social networks. After the announcement, many employees expressed sorrow for departing co-workers and gratitude for the ones still there on the Twitter section of the company’s Web site.²
Hsieh’s transparency, trust, and respect won him supporters even in the midst of a traumatizing event for the company.
How rare that is. Layoff horror stories abound: layoffs by a phone call with no human touch at all, layoffs announced at 4 PM on a Friday with no time for anyone to process, and layoffs conducted with bias — revealing structural inequity in age, disability, gender, ethnicity, and orientation. In some instances, layoff communications are grossly mishandled quickly leading to chaos and confusion.
For the CEO, a layoff provides hard evidence of your leadership virtues. When it is unavoidable, your virtues (quality, caring, temperance, prudence, courage, and justice) are all put to the test. What strategic realignment and reorganization will yield the most significant increase in quality? What is the prudent level of workforce reduction? Are you using factors perceived as just to select who stays and who goes? Are the severance packages and methods of communicating with employees reflective of true caring? Do you have the courage to be transparent with the reasons for this action, and to meet in person with each terminated employee? Can you act with temperance and calm as people all around you react with emotion?
As CEO, a layoff is always difficult, and often heart-wrenching. It requires that you summon your three voices: directional, executional, and moral. Put them to work as you execute these seven steps:
- Confirm the strategic imperative (directional voice)
- Cut deep enough (directional voice)
- Gain board and executive group support (directional, executional voice)
- Carefully select who (executional, moral voice)
- Design the severance packages (executional, moral voice)
- Develop and execute a clear, respectful communications plan (executional, moral voice)
- Rally the survivors (directional, executional, and moral voice)
Confirm the Strategic Imperative
Even the most sensitively managed layoff delivers a body blow to the employees that stay, as well as those that leave. It is major surgery, and like surgery, there are significant risks and an extended recovery period. Whether prompted by financial pressure or a strategic shift, you must anchor a layoff in a vital strategic imperative. Make sure the rationale is crystal clear, sufficiently significant, and urgent.
Cut Deep Enough
When you decide to pursue a layoff, do your very best to ensure you won’t need to do it twice. Too many companies conduct multiple rounds of layoffs because the first one was insufficient. This kills morale. On balance, it is better to cut deeper once.
Gain Board and Exec Group Support
Your board and executive group will provide invaluable input as the layoff plan emerges. Be sure to take heed and incorporate good feedback. You will need maximum support before you proceed. Things can go awry after a layoff, so it is critical to know that the board and executive group support you. Top leadership alignment drives successful execution.
Carefully Select Who
You will face many pressures as you determine which employees to terminate. You will participate in several legitimate debates about roles that should stay or go and the relative value of individuals occupying these roles. Too often, rank favoritism or hidden bias holds sway over layoff decisions. Laura George, president of LHG Consulting in Akron, Ohio, encourages rigor in the selection process.
“Be fair, not creative, when determining who to layoff. Use measurable criteria such as length of service or productivity. This helps the morale of the remaining employees and can reduce the risk of wrongful termination lawsuits. Look closely over all of the reviews of employees being considered for layoff. Close examination of a few years of reviews can ferret out favoritism. You want to keep the most productive employees, not the favorites.”³
When you first make selections, analyze the list for hidden bias. Is it disproportionate in any way regarding age, disability, gender, sexual orientation, or ethnicity? Does your analysis confirm that you made decisions based exclusively on objective factors such as historical performance and role? Keep working until you are confident that your list demonstrates integrity and can withstand scrutiny.
Design the Severance Packages
For the terminated employee, the layoff is a traumatic and highly disruptive event. If you have the financial capacity, your moral imperative is to soften the disruption with a market-competitive (or better) severance package. Consider not only pay but also health coverage and career counseling services. It’s the right thing to do.
Tight, Clear, Respectful Communication Plan
Tight choreography of every step in a layoff rollout is a must. Sequence matters. Steps should occur briskly — often in 15-minute increments. Follow this “tick tock” plan strictly so that the company controls the narrative, at least until all the news is out.
By role, one-on-one communications should start at the top and work down through the organization hierarchy. If directors and managers must execute terminations, make sure they have clear instructions on how to proceed, and that they follow these instructions stringently. It’s crucial to be clear and unambiguous — “Today is your last day of employment.” Specify details of the package and next steps (such as disconnecting from IT, the gathering of personal belongings, time for goodbyes, and the timing of departure from the building). As you get the facts out, show respect and compassion. Each person will react uniquely; it’s important to be generous, supportive, and tolerant of emotions. Give time for the laid-off employee to gather up belongings and say their goodbyes.
Rally the Survivors
After all terminated employees are aware of their situation, it is time to connect with the remaining employees. As CEO, you should call an all-hands meeting with the survivors to share the reasons for the layoff. Follow this communication immediately with small-group sessions held by managers and directors throughout the company. All questions should be encouraged. For the ensuing few weeks, stay on the lookout for aftershocks, and react accordingly. Keep up reassuring communications, demonstrating how much you value the remaining employees. Point toward the future, paint a compelling vision and reorient employees to the work in front of them.
The final $80M of pre-IPO funding came in, half from Bain Capital and half in venture debt from Silicon Venture Bank. Its purpose was to fund one more acquisition. The post-money valuation was $520M. Bain now owned the largest stake in SparkLight Digital at 37%. Imagination Capital was at 12%, and Kapoor Capital and Smash Capital were both at 11%. You owned 10%, Joe 6%, and Vijaya 3%. All other employees combined owned 5%. Anik Kapoor, Fess Fieldstone, and a smattering of angel investors held the rest. The board comprised Aleksandr Brovic from Bain, Mark Goldstein from Imagination, Sal Infante from Smash, Anik Kapoor from Kapoor Capital, and you.
After much analysis, you settled on DriveSoft DMS as your next acquisition target. DriveSoft DMS was an emerging player in the Dealer Management Systems space. While the company’s market share was modest at 7%, it was growing quickly. After an aggressive pursuit, you finally settled on a price tag of $67M and shepherded the deal to a successful close.
With the acquisition of a DMS platform, the digital circle in auto was complete. Now you could capture leads via the Weblastic dealer website platform, manage these prospective buyers via the sales side of SparkAction CRM, maintain high-quality communications with service customers via the service side of SparkAction CRM, and maintain the entire financial back-end via DriveSoft DMS. And with end-to-end data integration, it was now possible to track and analyze the performance of all digital ad spending. The potential for continuous analytics and business optimization was profound.
Your top leadership team went through some changes since the acquisition of Weblastic. You organized into two business units, with Vijaya running SparkAction CRM, and Ashley running Weblastic. As part of this change, you restructured reporting. Joe, Serena, Victor, and Bill now reported to Vijaya. Only Vijaya, Ashley, Jack (Finance), and Tina (HR) reported directly to you.
Now it was time to consider the future. You scheduled another executive retreat. The retreat would include your direct leadership team, now including Pat Jansen, the former CEO of DriveSoft DMS. But you also added Joe, Serena, Victor, and Bill. They had a deep history with the company and important perspectives to contribute to strategic planning.
Front and center was a fundamental question: how far, and how quickly, should you pursue integration? In the wake of the DriveSoft DMS acquisition, cultural integration was a given — you would not make the same mistake twice. But should the newly acquired company be organized into a separate business unit, like Weblastic and SparkAction CRM, or was it time to organize in a more integrated way?
You knew going in that Pat Jansen was a strong advocate for continuing the business unit structure. He wanted maximum autonomy. But you didn’t know where everyone else stood on the matter. You fervently hoped that by the end of the retreat, a consensus would emerge.
The retreat raged over two days. At times, the debate was so sharp that it devolved into open conflict. Positions calcified. In the end, it was clear that consensus would not be possible. There were two intractable camps: Pat, Bill, and VP Finance Jack Waltz favored continuing the separate business unit structure, while Ashley, Vijaya, Joe, Serena, Victor, and Tina favored an integrated, generalist approach. Left with no other choice, you made the decision.
The business unit structure came down. You based the new structure on function, and most positions in the company became generalist roles. Some specialist roles organized by product remained. And, three “standing teams” worked across the functional structure, also organized by product.
A new brand structure reflected the move to a more integrated approach. A clean, recognizable brand hierarchy emerged. “Weblastic” became “SparkInterest Web,” and “DriveSoft DMS” became “SparkControl DMS.” The brand hierarchy now looked like this:
A restructure of financial reporting resulted in all three product lines inside one P&L, not three. You retained the ability to pivot to a product view of the P&L if desired.
A full reorganization of the company commenced. The most significant challenge was to integrate the duplicate sales and marketing departments that sat in the former business units. But there were also substantial impacts on other groups.
In Product, you created three VP positions — Ashley, VP Product of SparkInterest Web; Vijaya, VP Product of SparkAction CRM; and Pat, VP Product of SparkControl DMS. All three reported to you. Joe returned to his former position as VP Engineering for the whole company, reporting to you. The same was true for Serena (VP Marketing), Victor (VP Sales), and Bill (VP Customer Success).
Joe’s Engineering department reorganized by project; no engineers would have a permanent product affiliation. In Marketing, three directors reporting to Serena, each with one junior marketing analyst, took ownership of the three business lines. The rest of the marketing group comprised generalists led by a director of brand marketing, director of growth marketing, and a director of marketing analytics. Similarly, in sales, three directors held product specialists roles, each with one manager. But, most of sales organized regionally, with all salespeople and SDRs acting as generalists (selling all three product lines).
Other than Product with its three separate VPs, Bill’s Customer Success department was the only department organized along product lines. Three directors reported to Bill, one for each product line. Each of these had separate launch and customer success staffs to ensure that customers of each product received strong expert support throughout the customer lifecycle.
Integration was the primary organizing principle with product specialization second, but still important. Each product sold into a unique competitive ecosystem. To remain in front of competitors, you would need to serve the emerging needs of buyers better than the rest. Therefore, you created three cross-functional product teams to ensure that SparkInterest Web, SparkAction CRM, and SparkControl DMS all had the dedicated support necessary to win. The VP Product for each product line led each team. Product-specific directors from Marketing, Sales, and Customer Success became members, each with a dotted line relationship to the appropriate VP Product. These teams had the charter to maintain, build out, and scale each product line with assessment based on market share growth in each of the three markets.
The new, more integrated organization chart resulted in many efficiencies. Three separate salespeople no longer called the same auto dealer. In the auto vertical, the forty-two new DriveSoft DMS employees plus the efficiencies created by the reorganization resulted in overstaffing. After much deliberation, you decided to live with it; you expected that within six months you could grow into the headcount. In the meantime, you created optimization projects to profitably use the skills and capabilities of these people.
But the non-auto verticals were another matter. Seventy-five employees worked in the RV, boat, motorcycle, heavy machinery, and furniture segments. The foray into these markets proved an utter failure. Despite multiple pivots and reboots, you had not figured out how to win in these markets. Now it was a distraction, and with the two acquisitions, your market opportunity in auto alone was tremendous. It was time to end the pursuit of the non-auto verticals.
There was no getting around it. At least these seventy-five positions would need to go. You gathered your exec team once again to select who to terminate. The easiest path was to eliminate the seventy-five people assigned to the non-auto verticals. However, you quickly determined to take the harder road, and select seventy-five from across the company, based on performance. Many non-auto employees were highly skilled and could transfer to roles in the new organization. Competency would be the only factor in determining who would go.
By noon on the day of the layoff, all terminated employees received their notice. Near day’s end, you announced an all-company meeting for the following day at 8 AM to accommodate Bengaluru hours.
When the hour arrived, you walked up to the podium in the large conference room of the KPMG building to face 190 shaken employees in San Francisco. Over one hundred remote employees in Kansas City, Los Angeles (the former headquarters of DriveSoft DMS), Bengaluru, and seven regional sales offices in the US and Canada connected via video conference.
Carefully, point by point, you made your case for the strategy. You explained the reorganization and shared why a layoff was unavoidable. You wrapped up with some final words.
“So that is our strategy. SparkLight Digital serves auto — and only auto. We offer a full spectrum of digital solutions: SparkInterest Web, SparkAction CRM, and SparkControl DMS. As a company, we are now fully integrated. You are the people we have chosen to carry SparkLight Digital forward. Over the next couple of days, most terminated employees will return to say goodbye. It is hard to see them go. I wish them the very best as they pursue their futures. Feel free to reach out to them or to engage them on social media in any way that feels right. For those of us who continue, the future is ours to create. Thank you for all you have done and will do going forward. Now let’s get back to work.”
There was no standing ovation this time. As people shuffled slowly out the door, you caught the low rumble of murmurs. On the way back to your office, you happened to ride the elevator with Pat Jansen, former CEO of DriveSoft and now VP Product in SparkControl DMS. He scowled, looked at the wall, and didn’t say a word.
Troubled, you walked back to your office.
- Jim Romenesko, “Report: Hundreds of Patch Employees Laid Off,” jimromenesko.com (blog), January 29, 2014, http://jimromenesko.com/2014/01/29/hale-global-lays-off-patch-employees/.
- Jeremey Twitchell, “Zappos.com Laying Off 8 Percent of Workers,” lasvegassun.com, November 6, 2008, https://lasvegassun.com/news/2008/nov/06/zapposcom-laying-8-percent-workers/.
- Darren Dahl, “A Better Way of Conducting Layoffs,” inc.com, July 19, 2011, https://www.inc.com/guides/201107/6-tips-for-conducting-layoffs.html.