Startup Layoffs: Lessons from Founders, Stayers, and Leavers

A read for founders, their teams and those involved.

With market conditions being tough, reducing costs to extend the runway has been a focus for many startups. We spoke to several founders and affected employees (stayers/leavers) that went through a reduction in workforce (RIF) and compiled the most valuable learnings for this challenging situation. To minimise the negative impact: Have a plan, communicate with care, assume responsibility, and focus on restoring trust.

1. Have a plan

Use it to your advantage that you as the decision maker can prepare and make a plan.

“Emotions are one thing, but you also need to be able to see a path to success. I locked myself into a room and did not leave until I had an action plan with defined priorities. This helped me to focus on the next step and execute”. Founder

How to plan:

• Get into analytical mode: Prepare a (very) realistic forecast by looking at what the company absolutely needs to succeed.
• Create different scenarios from a budget perspective to understand the impact it will have on the company.
• Get creative around cutting everything but headcount, and if it comes to that, consider other options (hours, salary, bonus, etc.).

Who to involve:

For many founders this felt like a very lonely journey.

“You have to drive the change and explain yourself to your leadership, all of your employees and your investors. While there are serious confidence and anxiety issues, you have to be the lighthouse (..) there to signal conviction and still stand strong, not allowed to crumble.” Founder

What helps:

• Make sure your leadership team is onboard and understands the necessity and implications. They know the organization best and can help you navigate communication, decisions, and the aftermath.
• Create a support group of 4–5 experts (e.g. founders who have been there, mentors, investors) and have them support you on a weekly basis.
• Get a coach or trusted external person to share emotions and be yourself.

‘Working with a coach allowed me to be myself fully, use strong words and say fully whatever was on my mind. It gave me the feeling that I could be myself, a moment of feeling free and enough energy to jump back into the role.’ Founder

Biggest learnings:

• Avoid incrementally cutting but instead plan very conservatively.“Better to cut hard and deep than needing to cut again” Founder

For your own sake:

• Focus on meeting your physical basic needs from food intake to sleep (even if difficult).
• Take 5 minutes and do breathing exercises and meditation if you get stressed (check othership, headspace, calm).
• Go for a run or take an ice cold shower. This will increase endorphins (feel good hormones) and make you feel less anxious and depressed.

2. Communicate clearly & assume responsibility

Everyone we spoke to expressed that the most important thing to get right is communication. Clear and compassionate communication will benefit both leavers and stayers. Remember to align with your company’s values because “how we do one thing is how we do everything”.

‘The golden rule is to be fair to the people who are leaving and to keep the communication open with the people that stay. Ultimately you should have in mind that you would like to have people come back to you if the company is doing better. “ Founder

Generally:

• Everyone needs to know why it’s happening (transparency)
• The leavers need to know you value them and their circumstances (compassion)
• The stayers know they stand on firm ground (trust)
• There needs to be conviction that the company will succeed (conviction)

As the founder and CEO it’s important to embrace extreme ownership of the situation and make sure that the messaging is congruent.

Be as transparent as possible:

• Why are we in that situation: Spent too much? Market? Sales forecast wrong? Fundraising conditions much harder? Product/market fit?
• We looked at the whole case
• What have we addressed for cost savings
• This is the reason why we have to let go of certain roles

Continue communicating about this, e.g. special dashboard, slack channel or meeting to discuss financials and what those mean for the company.

How to deliver the news:

• The approach should be fast and caring to reduce guesswork and anxiety.

“Communication is the biggest pain point. It’s most difficult to wait not knowing for weeks, not understanding why this is happening, not being sure about the way ahead. This leads to gossip, frustration and ultimately low morale all around” Stayer

Different sequences worked in different companies:

• start with a central approach followed by 1:1s (stayers/leavers),
• or first 1:1s (stayers/leavers) and then central communication
• or simultaneous communication with 2 groups (stayers/leavers)

Different formats:

• 1:1s (:2) are show sincerity and care that is never possible in the group setting
• It also allows stayers/leavers to ask their most urgent questions and have their own space to process the news.

‘I drove all the way to see my reports in person, it felt like this was important to me to communicate it directly’ Founder B

Leavers

For founders it’s important to explain your rationale, take ownership and show that you care.

“I felt so angry when our CEO told me I was laid off and said this was a difficult situation for him (??) and I would not be able to imagine his terrible experience having to lay off his colleagues. I felt he made it all about himself while I was the one without employment” Leaver

Biggest learning: Stick to your plan and keep your emotions in check, this is about how you can be supportive to your employee.

Keep it short — everyone will have a different reaction and will need time to process. The decision has been made and it is not beneficial to keep talking about it or give false hope.

• Get all paperwork and legalities in place
• Book a meeting (always better early in the day, face to face)
• Lead with the news: ‘This will be difficult and there is no easy way to say this’ (empathy)
• Give room for questions

Be prepared and give instructions

“One of the weirdest things for me was that I knew I am leaving in two weeks but still had to speak to clients pretending nothing had happened because there was no clarity about what to communicate and who will take over my role” Leaver

Address all practical concerns and give clear instructions:

• What’s expected between last day and now? Handover?
• What should I communicate to outside stakeholders etc?
• List of things that need to be handed back to company/when?
• Last salary/bonus and timeline?
• Shares/ Vesting/ Purchase Options/How to expect instructions?
• Information on unemployment

Offer Extra Support:

• LinkedIn Cover Letter
• Network
• Introductions
• Sourcing (if you can)
• Reference
• Opt in share of candidates: layoffs.com
• Share with your investors they might have talent partners who can match some of the profiles to hiring companies

“Making a list with candidates and checking within your close community if there is anyone that could hire them upfront was very helpful. I went into some of the conversations already with other founders that would be ready talking to my leavers” Founder

After the layoff has been communicated on the whole company scale it is important to follow up in writing, repeating and including all the necessary information:

• To everyone who is leaving
• To everyone is staying

Create a slack channel with #leaversfaqs where you can manage all of the initial questions.

3. Rebuilt trust and conviction

Be present and keep communicating:

Trust is difficult to rebuild and it takes time. One of the key learnings was that being present is key. Physically if possible or otherwise active on slack.

“The fact that I was present was very important. I was the first to be in the office and the last to go. I established an open door policy and it significantly helped everyone to gain back trust”. Founder

Tip: Have a dedicated channel #AMA for updates from the leadership where employees can clarify questions and numbers are continuously communicated.

Stayers

Communicate the new org and roles:

“One of the things that did not go well in our case is that there was 1–2 week break to communicate how the org will restructure, meaning there was very little clarity on how roles will look like in the future”. Stayer

Make sure to address the new rules with the stayers, keep in mind loss of capacity usually now roles have to assume more responsibility. If people are getting ‘promoted’ to assume more responsibility, think about how to do this with a title or small increase in salaries.

Learnings: It’s important to get together offline, consider a team activity or offsite that helps to rebuilt team spirit and culture.

Focus on the future:

Show conviction for your vision. Focus and communicate the positive: the runway now is longer, things move faster, and its easier to adapt to changes ahead.

“While this was the worst experience ever, the company culture now is the best it has ever been. There is a sense of urgency, a business/finance driven understanding and everyone chips in. The results are great. On top of it, I gained trust by executing and delivering and getting the company back on track” Founder

And remember “No storm is here forever”.