Of late we have been hearing the news about layoffs in Startups. Be it smaller startups or big names, every company that we know has had to layoff employees due to many reasons which can range from Financial reasons and can stretch upto being restructuring needs. Layoffs at time are inevitable, but there are a few things that employers must know before they decide to go for it.
While the startups use things like Growth, scale, funding, skyrocketing valuations, GMV, and other vanity metrics for getting funders and investors. There seems to be no escape route to spruce up the bottom line.
If we go by the dictionary meaning, Lay off means suspension or termination of employment (with or without notice) by the employer or management. Layoffs are not caused by any fault of the employees but by reasons such as lack of work, cash, or material. For many entrepreneurs, the thought of having to lay off employees can be nerve-wracking. And if you’re young, the act of firing an employee could be especially daunting. While there might be valid concerns, the fact is that termination of employees, while almost always painful, is a vital, rejuvenating part of business life.
Laying off haphazardly can be the worst thing to do for any employer, hence it is always recommended to strategize ahead of time and the rule remains the same whether you are canning one lousy performer or shutting down a whole business.
Rafi Musher, founder and CEO of Cambridge, Massachusetts, strategic research firm Stax Research says,
you ideally want to continually exit the bottom 10 percent of performers on your staff, and make that policy. “If you don’t think about it consciously,” he says, “you won’t act on it in a timely way.” Worse, poor performers impact the morale of the top performers, not to mention the bottom line and the paychecks, bonuses, and stock options of everyone in the company. And there are hidden costs, too-people who aren’t doing well suck up a lot of management time, so the actual cost to the company is far greater than just salary.
As per Ravi Gururaj, NASSCOM product and executive council, startups fire employees under three circumstances:
they don’t have money and want to raise funds; they don’t plan properly and over hire, or they hire the wrong talent.
While in current scenario, layoffs look like unavoidable and hence, we would like startups to have certain things in place before taking the extreme step:
1. Take Ownership
It is common place that CEOs blame a whole lot of things from market conditions to competition and board of directors for the Layoffs while addressing the employees. But, this can only add to the misery, in such situations you need to be a leader take ownership for your decisions. If you don’t have the courage to do so, then you have no rights to be a CEO.
2. Cut deep and cut once
Management usually tries to layoff a smaller chunck of employees and expects the miracle to happen. But this only raises the risk for the organisations, hence, we would suggest that in case layoffs have to happen, make sure you cut deep and cut once. Because doing so will help you turn around things and once the situation passes, you can declare yourself victorious and begin hiring again, and carefully this time around.
3. Do it soon
Once, the management decides that you need to layoff employees, and people in office know that something adverse is expected to come their way, make sure you take the required steps urgently. This will help you avoid the situation where the productivity of the employees drops like a rock. You’re either laying people off or you’re not—you should avoid the state of “considering” a layoff.
4. Helps clear the air
Though it may be painful, but layoff is a good time to terminate unproductive or marginally productive employees. It helps clear the atmosphere of the company and the ones who stay back know that the company has a clue about who’s performing and who isn’t—assuming you’re not clueless in making decisions.
5. Consistency is very important
We often see startups giving out generous severance packages t outgoing employees. While it is the moral and legal responsibility of the employer to provide for the outgoing employees, it is equally important to make sensible decisions while deciding the severance packages. If you need to do a layoff to cut costs (and conserve cash), then provide minimal severance packages, cut costs as much as you can, conserve as much cash as you can. If nothing else, it’s a consistent story.
6. Provide Support
The odds are in favour of the theory that the people getting laid off aren’t “at fault.” More likely, it was the fault of top management who have failed in their task of hiring the right talent. Hence, you have a moral obligation to provide services like job counseling, resume writing assistance, and job search help.
7. Avoid giving an option of self select
If you let people to choose to get laid of, chances are that you might end up losing your best people.Deciding who to layoff should be a proactive decision: Select the go-forward team to ensure that you never have to lay people off again.
The key learning for startups in this context are, hire carefully, keep an eye on the burn rate, and make strong business fundamentals that are not dependent on circumstances.