Navigating the Storm: A Startup Founder’s Guide to Layoffs

Since 2015, the General Partners at Enjoy The Work (ETW) have advised the founders of more than 125 startups. The firm’s mission is to help founders become great CEOs.
Enjoy The Work Blog. Navigating The Storm.

Founders spend so much energy on hiring. They read about it. They practice. They build rituals. They do retros. They even train the rest of the company on best practices. It makes sense: Great hires are prerequisites for great teams, and great teams build great companies.

But … I would argue that learning how to fire well is damn important as well. And this is where I see founders falter. They don’t read about it. They don’t practice. They don’t build rituals. They rarely do retros.

So instead, terminations are awkward at best and illegal at worst. The impacted employees feel betrayed; the survivors feel unsafe. The culture is negatively affected, and the digital airways are full of anti-references.

If only someone could teach a founder a better way to let someone (or a lot of people) go.

The layoff, aka Reduction in Force (RIF), is a must-have tool you need in your toolkit. Here’s a blueprint for its implementation.

Key Principals For a Successful RIF

  1. Keep in mind that the decision is NOT PERSONAL (though it’s undeniably sad and very personal to those being let go).
  2. Be ORGANIZED and COMPASSIONATE towards impacted employees.
  3. Ensure surviving employees feel SAFE.
  4. Secure the board’s BUY-IN and demonstrate GOOD GOVERNANCE (lawyers are your friends).

RIF Prep List

1. Communicate with the board

  • Present a clear and succinct message that highlights the challenging situation and the necessity of the RIF.
  • Use slides and financial models to explain the RIF’s costs (severance, legal fees) and impact (burn saved, runway, departmental adjustments).
  • Assure the board that you’ve got legal coverage (there is a right way to do this).
  • Align on separation packages and their rationale (culture, addressing gaps post-termination, etc.).
  • Soften the blow for impacted employees by waiving cliffs or extending exercise windows (it’s a small gesture with a big impact).

2. Get organized for termination

  • Choose a date that allows for management input while minimizing discomfort. (Being asked to hold RIF knowledge through meetings and happy hours and everyday encounters is a hard ask for most humans.)
  • Prepare separation agreements and final checks (collaborate with HR, attorneys, or benefits admins).
  • Inform as few people as possible to avoid damaging rumors (leaked RIFs can have long-term consequences).
  • Loop in the leadership team close to the RIF date, but not too far in advance.
  • Map out the RIF narrative, and anticipate questions from impacted and surviving employees; then share answers with leadership.
  • Decide on post-termination system access and respectful exit procedures. (For example, for those who operate from offices, offer to meet them after hours or mail them any personal items.)

Day of RIF: The Narrative — Authentic & Vulnerable

Founders often get lost here. They worry about too much disclosure. Then they worry about too little. They try to be so gentle that they end up not saying anything useful at all. Here is the suggestion — write down your unadulterated truth. And then ask someone you trust who you know has intimate knowledge of your company culture to help find a balance between heart and candor. Here is a generic example:

In our zeal to make our product available to as many people as possible over the last several years, we’ve tried to meet, convince, and win as many customers as we possibly could.

But as a result, we were not terribly discriminating in which customers we pursued. That brought us a great deal of revenue, but it also brought us real challenges that we were not fully ready for.

Put simply — we not only took on customers where we could have a great impact. We also took on customers where we had little chance to succeed.

And while we tried our best to pick up the pieces, with some of our customers, it was a losing effort. The customers were unhappy, our employees were frustrated and our expenses spiraled.

We’re paying for those decisions now, trying to learn from them, and trying to do better. So we’re going to take a step backward to go forward in a healthier way. That means, we’re going to lose some customers. And that means for the time being, revenue will also go backward. But the customers that will remain will be our best — the ones for which our product delivers enormous value, and in turn, offer our company enormous value.

This adjustment will be painful for a time, and sadly will mean we’ll be letting go of some of our team so we can balance our expenses with our new revenue levels. But this is the right decision for the health of the business today, and for our collective long-term success to come.”

Day of RIF: Communication is vital

  • You have three audiences: your impacted employees, your leadership team, and your entire company.
  • Hold two-on-one meetings with impacted employees. The executive delivers the message with clarity and a high level of empathy. The HR rep leads the logistics and severance package discussion.
  • Have team leads talk to surviving team members; that builds trust and a sense of safety.
  • Conduct an all-hands meeting with a town-hall style Q&A. Be ready to address concerns about the RIF, company stability, and future plans.

Post-RIF External Communications

  • Prepare for customer and media inquiries (project stability and agency).
  • Include your PR firms in external message planning and decide on proactive or reactive messaging (the press may or may not grab the story; better safe than sorry).
  • Redirect any press inquiries to the designated person (often the CEO).

Post-RIF Internal Communications

  • Don’t let employees feel powerless after the RIF (they’re your lifeline); prioritize relational communication, lean on candor and acknowledge the emotional nature of the layoff
  • Make a list of “special talent”: people who are CRITICAL to your business. Schedule one-on-ones with them to reinforce their importance and answer their questions.

As a founder, you know that running a startup is an unpredictable ride, full of ups and downs. Unfortunately, 2023 is one of those downs. And that means a year less marked by hiring and more about firing. And while hiring is hard, layoffs are even harder. As CEO, your role is to run a process that is respectful to three separate entities — the departing employees, the remaining employees and overall shareholders. Do the work.

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