Layoffs Suck… for Everyone

My first experience with layoffs came during the dot-com bust in early 2001. I’d helped to build a company called drugstore.com during the boom period — we had a remarkable team full of insanely great people. The mission in those early days was simple: (1) get big fast to establish merchandizing power; (2) use technology to create a barrier to entry for traditional players. Money was easy, and we went all-in on both fronts. My contributions were mostly technical — and we did a ton. The first persistent shopping cart, wishlists and auto-replenishment, promotions and affiliates, live order and inventory status, pill robots — stuff that seems routine now. But back then there was just our team, the VC++ compiler and rack upon rack of 1U servers down in Renton. Some great times.

Hindsight is easy, but I still maintain with a straight face that if the money had lasted just a couple of more years we would have made it over the hump. Of course I think we were “special,” but who knows. Anyways, that clearly did not happen and pretty much overnight we were looking at a misaligned company with limited cash, limited revenue and enormous operating costs. That meant layoffs — and it was the f*cking worst. For everyone.

This week those memories came back to the surface, as another company I’m close to had to let a lot of good folks go. It bummed me out, and I fear that more companies will land in the same boat as we wrestle with the unsustainable state of today’s economy. Times like this are when leaders either shine or falter — I’ve done a little of both — but quite reasonably people are often hesitant to talk about their experiences. So let’s try to fill that gap — without further delay, some hard-won thoughts for leaders trying to make layoffs suck just a little bit less.

First and foremost: if you are a human, this is going to be really awful for you — hard decisions, hard conversations, personal grief and guilt, buckle up. I’m here for empathy and understanding. Beyond that: SUCK IT UP. No matter how bad it is for you, it’s a thousand times worse for the people going home to tell their families that they’ve lost their jobs. Your role is to be as transparent, honest, supportive and understanding as you can be, and to help everyone move on with the respect and dignity they deserve. Of course you’ll be sad — but remember, this is not about you, it’s about the people whose lives you are impacting.

1. Avoid the problem

You never have to lay off a person you didn’t hire in the first place.

Drugstore notwithstanding, I am not a fan of getting big fast, especially when it comes to FTEs. There is always pressure to do more, and it’s incredibly tempting to respond to that by asking for more headcount, which can come free and easy when the coffers are full of Series X funding. Beyond the fact that this rarely works in software anyways, it is likely to leave you people-heavy when money gets tight. And people are expensive — way more than you think. In my experience the “fully loaded” cost of an employee (including benefits, insurance, equipment and facilities, etc.) is around 2.5 times their salary and bonus alone. For better or worse, there is almost nothing you can do to reduce a budget faster than trim people.

So don’t add them until you know they have a long-term, structural purpose at the company. I also hate hiring contractors, but if you have a short-term burst of extra work, that can be a far better option. (If you can, contract on a project basis rather than as staff augmentation — it makes performance far easier to evaluate and gives you obvious go/no-go milestones.)

Your CEO is going to hate this advice. Hiring people feels good, and makes execs feel like their business is growing (pro tip: measure revenue instead). You may also have mentors that tell you to grab budget “when you can” — this may be good ladder-climbing advice, but it is irresponsible business management.

2. Try other stuff first

When you’re sitting face-to-face with somebody you’re letting go, you’re almost certainly going to tell them that it was a last resort — so make sure that’s true.

People costs do tend to dominate budgets, but there are other levers. Reduce travel and face-to-face meetings. Get rid of the fancy coffee makers. Delay a project for a quarter. Reduce benefits in a way that spreads a little pain across the whole company, maybe a year without bonuses or higher insurance copays. Be careful with these, because giving up a bonus is a lot easier for somebody making $250K than somebody making $25K.

But look at everything, because you probably also told folks that you were “like a family,” and a family works really hard to make ends meet before they sell a kid to the circus. So put in the work. Even if it isn’t enough in the end, people will see and appreciate that you honestly tried.

3. Day Of

First, understand that there is no “good” way to run a large-scale layoff — it doesn’t exist. There are already rumors floating around, even if you think there aren’t. While it’s ideal for everyone to be notified at the same time, it’s even more important that individuals learn their situation 1:1 and not through a mass email (or tweet). Reactions will vary: some folks will take the news well; most will be upset and a little embarrassed; a few may become angry and even belligerent. The best you can hope for is to get through the day maximizing for timely, straightforward personal notifications and efficient, minimally-awkward exits. Here’s what I’ve seen work best:

1. BEFORE the day arrives, be sure you’re prepared:
   1. Have your severance package locked and described clearly in a printed document you can hand to affected employees. If you can continue healthcare coverage for a few months, that seems to have the biggest positive impact.
   1. Assemble a comprehensive Q&A document. As a leadership group, try to imagine every question you will be asked and have a ready answer. Read this Q&A a bunch! You do not want to be improvising in the moment.
   1. Make sure your IT department is looped in and is ready to manage accounts and access.
2. ONE DAY BEFORE, schedule meetings.
   1. First, set up individual meetings with each affected employee, in a private conference room. Each employee should hear the news from their manager (or a level up if there is a relationship there). If your company has the resources, there should be an HR person in the room. Start these early and pack them together as closely as possible. 20 minutes is a good amount of time.
   1. Take particular care if there are affected folks on vacation or leave. It may be impossible to contact them in a timely way; just do your best.
   1. Schedule an “all-hands” meeting in the early afternoon or as soon as you’re able to finish individual meetings. This invite should be sent to the whole company, not just the remaining team.
3. THE MORNING OF, try to manage individual meetings as best you can:
   1. Begin with the manager explaining that the company is having a layoff and their job is going away. It’s worth stressing this: it’s the job, not the person. Words do make a difference.
   1. Thank the person for the work and energy they have contributed to your shared mission. Reinforce that this is about streamlining costs and is unrelated to their job performance.
   1. Reiterate that the change is effective immediately. Describe the severance topline — just enough so that they know they have some economic support. Give them their physical package, and tell them to read through it carefully at home. You probably want them to sign an acknowledgement of receipt (not agreement). It is often better for HR to give this part of the message if that’s an option.
   1. Answer questions but really really try to stick to the Q&A. Don’t let it go too long or become a circular conversation.
   1. During the meeting, IT should freeze the employee’s email, access keys, VPN access and any other corporate accounts. This is terrible, but important — a single employee with a kneejerk reaction can do great damage not just to the company but to themselves as well. Much better to just remove the risk.
   1. Tell the employee to go home (unless they’re remote anyways), absorb their severance package, and to contact HR if they have any questions. This is also tricky — have somebody walk with them to pick up car keys and other items from their desk before leaving. They should not stay in the office, even just to “let people know.” If they grab a plant or two that they can carry, that’s fine. But do not have them “clean out” their office at this time … make a plan to box up things for pickup later, or schedule after-hours times for people to come back. This is not about risk the same way that IT access is — it is simply better to create some separation immediately so everyone can process in their own way.
4. THE AFTERNOON OF, talk to remaining employees at the all-hands meeting.
   1. It’s OK to be sad … how could you not be? Share that with the team; let everyone be sad together. But don’t wallow and don’t make it about yourself.
   1. Take responsibility for the decision. Explain how you got here, and why you believe this is the best course of action. External factors are real, but if the company was over-leveraged because of mistakes, own that too. Explain not what you would do in hindsight, but how you’re going to do better going forward.
   1. Tell them the three-month plan. Remember, right now everyone now thinks that this was just the first layoff with more to come — why should they stay engaged?
   1. Take Q&A, but keep it limited and do not improvise. Use the same materials you prepped for individual meetings.
   1. Keep it short. Tell everyone to go home for the day and decompress — tomorrow we dig in and start again.
5. THE EVENING OF, try to close this chapter so you can move on.
   1. Send a company-wide email re-stating what you said in the all-hands meeting. Remind folks it’s great to reach out to their ex-colleagues, professionally to help with their job search and personally because they are real humans that we still love.
   1. Breathe. Give your family a hug. Call your mom. Have a beer or a tea or a whiskey and go to bed. You’ve done your best.

4. The Next Day and Moving Forward

Your most important job today, and for the next few days, is to show up.

Yesterday people needed a little time to themselves; today they need to see that your company is alive and vibrant and making magic. That doesn’t mean ignoring what happened or pretending your ex-colleagues don’t exist. On the contrary, it’ll be the number one topic of conversation, and you should be prepared for a steady stream of folks looking to you for understanding and a reason to believe. But most importantly, you and other company leaders just need to be there. This is a very easy time to disappear and avoid the tough conversations — don’t let that happen.

Shoulders back, head up, let’s go.

Tactically, there is now (by definition) more work to do than people to do it. Make sure you account for this as you reallocate projects and responsibilities. If you can cancel or postpone things (you can), do that so people know that you understand that this is tough for them too. If there is work that you personally can pick up, do it. This is one of those crisis times when teams either bond together or fall apart, so do whatever you can to nudge things the right way.

I guess that’s about it. Surprisingly emotional to even write about — but hopefully a useful roadmap, and a reminder that this stuff isn’t a game. It’s lives, careers, dignity and responsibility — what you do and how you handle it matters. Step up!