How to calculate the lurking layoff risk in your startup job offer

You’re eyeing your next startup gig. How can you quantify your likelihood of getting downsized?

Venture capital financing, private equity, and IPO events drive some startups to scale as quickly as possible. You can read more about that in Erin Griffith’s December 2016 article in Fortune. In an attempt to capture nascent markets before competitors can catch up, investor pressure sometimes encourages startups to grow headcount more quickly than they can grow revenue.

Between 30% and 95% of startups will fail, depending on how you define “fail.” Startup layoffs aren’t freak occurrences. For the prospective startup employee, is the risk worth it? We certainly think so. Working at a startup offers dynamic workplaces, unparalleled learning, the potential for rapid career growth, and a unique opportunity to build strong lifelong relationships.

But, don’t take our word for it. Listen to Christopher Kiertz, a Boston-based marketing leader who just published this eloquent post on LinkedIn:

Choosing to work at young, early-stage startups is a risk I’ve loved taking because of the endless possibilities and the comradery that’s built between a small, tight-knit group of people overcoming seemingly impossible goals. But for the second time, I’ve been laid off due to circumstances outside of my control.

I’m not going to run away from it. Shit happens. Or, sometimes, the shit that’s supposed to happen, DOESN’T. It’s incredibly humbling. I’d love to be writing a status about how we raised a giant round of funding or how we just won a massive deal, but things don’t always work out that way. And that’s ok. I made a decision and it didn’t work out.

Here’s what I do know: I may feel like I’ve done it all, but my marketing career has just begun. There are so many lessons to be learned, so many deals to be won, and if I’ve learned anything, so many dollars to be made. It’s time for the next step in this journey. If you’re looking for a lead gen marketer to help change the course of your company, message me or email me at chriskiertz@gmail.com.

BRING IT ON.

Layoff-Aid Layoff Risk Calculator

We have a special appreciation for startups here at Layoff-Aid and we want to help the ecosystem both attract people thinking about joining for the first time, as well as keep the talented, driven and accomplished professionals who have become startup veterans and are thinking of leaving after one too many layoffs. Whether you’re employed or not, the process below is designed to be helpful whenever you’ve decided to explore new startup opportunities.

First, do some research:

1. Layoff History — Check Layoff-Aid’s Layoff List of Startup Downsize Events. If your prospective employer isn’t listed, Google “{CompanyName} layoffs.” Open request to the community: if you find a publicly reported layoff event missing from our list, please share it with us so we can add it for the community!
2. Funding — Google “{CompanyName} Crunchbase funding”
3. Independence — (After you get an offer) Ask the company about their financial standing: “How much revenue did you earn in the last 12 months and the 12 months before that? Can you show me profitable financials? How can I be comfortable about the company’s financial strength for the next 24 months, assuming no additional funding?”
4. Mitigation — (After you get an offer) Ask for a pre-negotiated severance package in case you get downsized by a future reduction in force. Many firms will say no, but some may say yes, especially if you’re a senior hire.
5. Miscellaneous Adjustments — Search for news about executive turnover, lawsuits, meaningful M&A activity, major product failures, missed expectations, or other signs of potential trouble ahead.

Next, use the Layoff-Aid Layoff Risk Calculator

1. Layoff History [Max 3] — No downsizing in the last 36 months of operating? Award 3 points. No downsizing but less than 36 months of operating history? Award 2 points. If downsizing occurred between 18–36 months ago, Score 1. If downsizing occurred in the last 18 months, Score 0.
2. Funding [Max 2] — Any i) Series A, B or C in the last 12 months or ii) Series D or higher (e.g. Series E, F, G, or IPO) in the last 36 months? Score 2 points. Otherwise believe there is funding or stability? Award 1 point. Otherwise, Score 0.
3. Independence [Max 2] — Can the company show you profitable financials? Score 2 points. Does the startup i) have annual revenue of $25M or more AND meaningful revenue growth over the past 24 months, or ii) financial strength for the next 24 months without additional outside investment? Score 1 point. Otherwise, Score 0.
4. Mitigation [Max 4] — Can the firm offer you a pre-negotiated severance package of 12 / 9 / 6 / 3 months pay in case a future reduction in force eliminates your position? If yes, award 4 / 3 / 2 / 1 points, respectively. Otherwise, Score 0.
5. Miscellaneous Adjustments — Add 1 for each of the following: i) the firm has leadership that has exited a previous startup successfully; ii) the firm is public and has seen a stock price increase of 30% or more over the past 36 months. Subtract 1 for each of the following: i) turmoil or meaningful change of circumstances, such as a new CEO, high-profile lawsuits, or significant merger & acquisition activity, in the past 12 months; ii) the firm is public and has seen a stock price decrease of 50% or more in the past 36 months; iii) the firm is private and has not had any funding activity in the last 5 years .

If your offer Score is 7 or higher:

Congrats! You’ve mitigated as much as one can hope.

If your offer Score is 5 or 6:

Anything can happen, but your startup downsize risk is relatively low.

If your offer Score is 3 or 4:

Your startup downsize risk is normal. You likely have a great opportunity to join a growing company at a special time, but you’re not without risk.

If your offer Score is 2 or lower:

Your startup downsize risk is elevated. Put additional premium on cash compensation like base salary and upfront earnings like signing bonus. After you start, consider keeping a stronger interview pipeline for new opportunities than you otherwise might.

Get laid off by an SF tech startup?

If you happen to get downsized / laid off / restructured from an SF tech startup, Layoff-Aid wants to help you with next steps.

Hiring SF tech talent?

Layoff-Aid for Hiring helps you access great candidates you’ll otherwise miss.

Have opinions on methodology?

What might improve the The Layoff-Aid Layoff Risk Calculator? It’s a work in progress, and we’d love to hear.

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Special Thanks 🙏

To Layoff-Aid’s job-seeking candidates and Hiring partners, as well as Rose Martin, Nikhil Abraham, Jamie Goldsholl, and Nayem Hossen — many thanks!