Let’s talk about the wave of layoffs in the news. It’s become a common sight over the years to see poorly run, highly funded startups (usually in tech) resort to mass layoffs in knee-jerk fashion. That’s no surprise, as many of those companies aren’t really differentiated on product and don’t even need a path to profitability in order to be considered a reasonable funding bet for many VCs. The common VC model only looks for a small handful of true winners, followed by some break-evens or small losses and the rest as total failures with 100% loss of capital. If that’s your investment model, and the capital is flowing freely (as it does during credit boom cycles), why not take a shot on the 237th SaaS startup offering the next great enterprise cloud CRM? And where the money flows, so do the hirings, followed inevitably by layoffs when the credit cycle contracts and cash dries up.
But this time it’s different. While the reasons are largely the same (contracting credit across the economy leading to less liquid capital, combined with recession fears cutting into revenues even among core business segments), the impact is wider. Sure, layoffs are affecting the usual crew, but they’re also hitting titan-sized companies like Microsoft and Google in a big way. Many people who never expected to be subjected to a mass layoff because they worked for enormous, mature, stable companies are suddenly finding themselves out of work, and resentment is setting in.
TO EMPLOYEES: THINKING LIKE A LEADER
This newsletter is written for business leaders, but first I’d like to talk to employees and ask you to put yourselves in the shoes of a leader. In fact, every leader is also an employee. Not only have most of them had plenty of bosses over the years, they still do. Even if you’re a CEO, you’re still answering to boards, shareholders, creditors, Wall Street analysts, activist investors, government regulators, vendor partners, and/or key customers. And yes, even answering to employees, especially top talent. Any one of those could choose to ‘fire’ or ‘lay off’ their relationship with your company or your CEO, and the emotional and economic impact on that top executive can potentially be so substantial that to them it feels the same as an employee being laid off. They could even be actually fired from their own company (Steve Jobs), or if they’re a founder who has their whole net worth tied up in the success of the business, they could lose everything to a bankruptcy.
So everyone has a boss (or many bosses). If you’re in middle management right now, your employees probably think of you as part of the ‘them’ class, even though you may feel like that only applies to the people above you. And odds are, the people right above you probably feel the same way about those above them. Even at the very top there is fear of being rejected by one’s bosses, even if that ‘boss’ isn’t your manager in a conventional sense.
Let this humanize your perception of your managers. If you’ve ever been in any management position for a good while, you’ve probably had to fire people or lay them off. Did it make you feel good? Probably not, but that employee still may have left that day angry at you.
The point is this: most business leaders aren’t going around intentionally scheming how to maximally take advantage of their employees like Mr. Burns from The Simpsons. Yes, those people do exist, sometimes in very powerful positions, but they thankfully aren’t the majority. Far more often, if management resorts to layoffs, it is at least considered an unfortunate necessity, and one which they try to avoid. Management is charged with trying to keep the company afloat (and in many cases it’s even a legal obligation); if they don’t, it won’t just be you out of a job: it will be everyone who works there, and probably many people in other companies too (like your major vendor partners) whose success depends on your company continuing to exist.
Now it’s true that sometimes it may be a good thing for companies to go out of business, but that is a much broader discussion pertaining to things like economics, malinvestment, resource allocation, and social good; for now, we’re just thinking practically about the perception of the people actually going through layoffs.
TO LEADERS: THINKING LIKE AN EMPLOYEE
Even if a layoff is inevitable, whether you’ve done enough as a leader to avoid it, or handled it the right way, is another matter entirely. If you’re a leader, you’re also an employee to someone, even if you’re CEO of a company where you own 100% of the equity. If your customers ‘fire’ your company, you personally might be out of a job. That probably wouldn’t feel very good, and it is incumbent on you to consider that your responsibility also extends to your staff. In fact, your employees are one of your most important stakeholders. So what should you do if you’re considering layoffs?
First, management should take compensation cuts long before any mass layoffs are considered. Simon Sinek rightly says that “Leaders eat last,” and Apple CEO Tim Cook’s recent request to cut his own pay by 40% is a fantastic example of true servant leadership. If you’re laying off a bunch of people and then paying yourself a bonus, you’re doing something wrong. Unless you change that attitude, it will become increasingly-difficult for your company to attract and retain top talent in the coming years. Employee expectations of their employers are much higher now, and that shift will continue as Millennials begin to take the majority of management positions and Gen Z starts to become the dominant segment of the work force. If you find yourself unable to attract the talent you need, then you may be the next one out of a job.
Second, layoffs are a pretty permanent solution and have a lot of additional consequences and costs. Sure, maybe you can hire some of those people back later, but most of them will have moved on to something else. Don’t expect your employees to sit around for 12 years like Kramer waiting to go back to work at the bagel shop. When employees exit, they take with them a wealth of intangible institutional knowledge that is very expensive and time-consuming to replace, so really consider if you’ve made other reasonable cuts before turning to layoffs.
One of the worst things that we’ve seen in these recent layoffs is certain companies cutting many jobs and then almost immediately commencing a mass hiring campaign in some other department or division. This is truly short-sighted to the point of being utterly flabbergasting. Of all the people that were just laid off, almost none of them were suited for an employee transfer? Even if they need a little bit of training, hiring a new person who has all the right skills today but doesn’t know your company, processes, or systems is still going to cost you more when the expense is fully-burdened than would transferring an existing employee who is 80% of the way there on skill.
Third, if you do need to conduct layoffs, have you done it in a thoughtful and sensitive way? There’s never going to be a perfect way to let somebody go, and in a large layoff there will be always be some fallout and hard feelings no matter how much you try, but you at least need to show real empathy and concern. Thoughtful communication is vital, i.e., not letting people find out because their systems access is suddenly terminated, or because they got an e-mail, or they were dragged into one of the now-infamous Zoom style mass terminations with one-way communication.
Once you’ve actually informed the affected personnel, severance and extending health insurance coverage longer than legally required is a great way to show you care, provided you have the capital to make that work. Managers offering to leverage their own networks to help good people find another job (which costs nothing to do), and companies paying for career transition and placement services, are becoming best practices.
Lastly, consider if this could have been avoided and what you can learn from it. Were you too loose with your deployment of capital? Did you rely on excessive leverage without a reasonable consideration of your interest coverage? Did you let some analyst on the Street bait you with inflammatory commentary? Or were you chasing a higher stock price to hit your next bonus tranche at the expense of the overall sustainability of the company? If there was anything that you realistically could have done differently, take note, and hopefully you can avoid repeating this situation in the future.
But even if you do everything right, sometimes things just don’t work out, and you may find yourself with no reasonable options other than to conduct a large round of layoffs. But if you’re considerate, empathetic, and strategic, at least you can hopefully make a good omelet out of those broken eggs, because at the end of the day, we’re all somebody’s employee.