Managing Layoffs as a Startup: How do you do right by your employees?
Layoffs are complex and impossibly nuanced. Even in the best of economic circumstances, laying off a portion of your workforce can be emotionally taxing and requires all-hands internal preparation to ensure seamless execution.
Depending on the size and stage of the company, you might have practices in place and executives well versed in how to guide the c-suite, managers, and relevant parties through each step. But for smaller firms or early-stage companies, that’s often not the case.Perhaps your lawyer is provided through your accelerator or your COO handles your company’s hiring and payroll, or perhaps you are a 25-year-old founder facing the most difficult decision of your company’s tenure yet … without the infrastructure of an enterprise HR, legal, and leadership team, navigating the complexities of layoffs might seem, well, impossible.
Layoffs, or reductions in force, hinge on thoughtful and well-documented processes. But in order to really get it right, you must lead your company through the difficult transition. The situation begs the question: How do you manage layoffs with empathy?
For many of us, we are in new terrain. So, we have pulled together some of the best advice that we’ve read on how to not just manage layoffs smoothly, but how to do so in a human-forward way with compassion
Have a set communication plan in place
Your communication plan will be twofold. Initially, you must share the news with leadership and team managers. This group will serve as your sounding board and confidential cohort as you determine the number of layoffs, who will be laid off, and when/how it will happen. Second, you must share the news with your entire team.
HR expert Beth Steinberg recommends that you approach the announcement in one of two ways:
Option 1: First, hold a company All-Hands where the CEO makes the announcement. Then, employees and direct managers have both team and 1:1 conversations.
Option 2: Direct managers will first announce the layoffs to their teams. Then, the company will call an All-Hands where the CEO discusses the news from a high-level perspective, after which employees have 1:1 conversations with their managers.
Equip your managers for 1:1 conversations.
Be prepared to dive deeper into the remarks from the All-Hands meeting. For example, Carta’s CEO did a fantastic job of outlining exactly how layoff decisions were made and what immediate next steps would be for his employees.
You can initiate the conversation by walking your team through your thought process: We need to cut our spending by X % to keep the doors open. Even after slashing non-salary spend and after management withholds or takes a salary cut, we still come up short. Here is how, as a leadership team, we decided to move forward with deciding who will be cut/which departments were necessary to stay on…
You should also be prepared, as a CEO or as a leadership team, to know just how much transparency you would like to provide to your team. Will you share your exact runway with exiting and remaining employees? Will you give an estimate of how much revenue you need to make in the following weeks to keep the doors open? People will be curious, so be ready to answer the tough questions.
Layout Timelines and Transitions
Above all else, be swift and consistent. There are numerous ways you can approach both the announcement and employee transitions, regardless, have a set plan in place.
Perhaps you’ve decided to have an all-hands in the AM and 1:1 meetings directly after the team meeting. Beyond that, know the “how and what” for each employee’s next steps. Be ready to answer all questions about severance, timeline, returning company property, using employer email/accounts, etc. If you are looking for a process deep dive, Andreesen Horowitz’s blog recently released offers a comprehensive “how-to” of legal/HR-focused procedures surrounding layoffs.
Do so with Tactfulness
Even if the layoffs are happening to employees with performance issues, this isn’t the time to bring that up. This is a tough market to be without a job, without a community, with a semblance of normality. Be thoughtful and empathetic.Own the decision and help your employees understand the situation.
Approaching the severance package (when there’s limited cash flow)
No, an employer is not responsible for an employee’s next step. But, regardless of climate, it’s critical that the human-first approach that we are striving to have in the recruiting and talent management aspects of our employee relations also extends to how we are managing company-wide exits.And one way that we are seeing companies handle this is with the severance package.
For larger or more established companies, there might be room in the budget to offer your employees a few weeks of severance pay. Generally, the average is 2 – 8 weeks, dependent on tenure. And if performance bonuses or revenue-shares are paid out on a quarterly or semi-annual basis, you might prorate the expected amount (or simply give them the full amount). But if you’re an early-stage startup or smaller firm, you likely don’t have the extra cash to make this offering. So how do you create a package that supports your team in the weeks and months following their exit?
How are you handling equity for employees who haven’t vested? Depending on the implications for your cab table and your company’s philosophy around equity, you might consider vesting a portion of people’s unvested shares (you can create a sliding scale depending on the person’s position / how long they’ve been with the firm, or apply the same principles to everyone if you like). As a startup, equity is a unique asset that you can use to demonstrate that you are doing everything in your control to support your employees. While it won’t help them pay off their student debt, it will provide a clear and strong signal to them that truly care.
Given the current climate, larger companies and firms are making a point to cover things like healthcare (COBRA costs) as part of their package. But again, a smaller company simply won’t have the capacity to offer this sort of benefit.Compiling information on the options that people might have will help employees feel less stressed during this transition period.
For example, companies like Oscar Health offer inexpensive catastrophic plans and accessible telemedicine for young adults under 30 years old, if an employee is younger than 26 years old they qualify for their parent’s plan (if that’s an option), and losing your job is a qualifying event, so employees may be eligible for government-subsidized programs.
Are there additional benefits that you currently offer your employees that you can extend to your exiting team members? For example, maybe you pay for Headspace memberships or Classpass credits, is there some sort of stipend that you can extend for a wellness perk that might be beneficial to someone during this time? It may not “pay the bills”, but a small gesture can go a long way in showing your team that you care about them holistically.
Support your employees on their future journeys: Career Coaching
As we’ve mentioned, it’s a tough job market. Many companies (and entire industries) have hiring freezes or are experiencing downsizing themselves. How do you ensure that your exiting employees have the resources they need to land their next job?
This is a difficult time where many individuals need more comprehensive support to confidently and successfully maneuver their job search. Last week, we launched Coached by Scouted, which offers personalized and compassionate career coaching for job seekers and for employers looking to manage layoffs with empathy, at a fraction of market prices. Coached by Scouted gives employees added support and guidance through an unexpected transition while serving you as an affordable solution to traditional outplacement offerings.
And equally important: Managing the layoff aftermath internally
Looking internally, after you’ve laid off a number of employees, how do you move your team forward? When it comes to managing layoffs well, not only do you need to focus on how to support the people you are letting go, but it’s equally (if not more) important to think about how this is going to affect the team who is staying on, both in terms of their day to day work but also how it could affect culture, community, and morale.
When it comes to business continuity, typically, you might require exiting employees to give up to 4 weeks’ notice, and hold them accountable to documenting a playbook of their responsibilities as well as training their teammates to do their job. But given the current climate, that might not be the case for employees who are leaving.
Having department level playbooks is critical for expansion and repeatable processes, but the playbook is also useful for situations where an employee leaves without notice. While a playbook is difficult to complete retroactively, you can (and should) ask employees to share their institutional knowledge and general day-to-day tasks in a consolidated and comprehensive document before they leave. From there, you can ask future team members to fill in the missing parts and build off of the work that’s already in place.
Besides learning the tactical elements of work that are being re-distributed to your remaining internal team, organizational shifts are likely to chase a shift in higher-level responsibilities as well. Junior team members might be stepping into leadership or management roles or individuals might be owning two or more departments – there are numerous scenarios that could unfold as you reorganize your team. Now, more than ever, your team might need additional mentorship, training, and support. Offering resources like career coaching might help your remaining employees as much as it could to your exiting ones.
But moving beyond practical needs, you might be wondering how you will continue to motivate and support your team now that layoffs have happened. How do you work through totally normal feelings of “am I next” or uncertainty surrounding the business?
I asked our co-founder for her take and she offered the following advice:
“The principles we’ve all been using to manage our team during this crisis, remain applicable here. But, I’ll save you from re-iterating a laundry list of things you know (provide transparency, communicate early and often, provide constant updates), the most important thing you can do is be human. Let your team know that this is new terrain – not just for them, but for you too, and you need their help, support, and ideas to work through it together. Ask them for their input and their feedback. Tell them that we are learning in real-time, together, and it is together that we will push through like we always do.”
At the end of the day, you know your team best. You’ll understand how to approach the conversation with each individual. Scouted is simply here to provide support and guidance to you and your team along the way.