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Once founders have moved beyond reducing expenses and potentially rent, headcount is the next bucket to examine closely. Of course, this isn’t about line-items in a spreadsheet. Our single biggest piece of advice is to remember that these decisions will have a profound impact for the humans on your team. Explore all your options before diving straight into layoffs.
What other founders are currently thinking: Many startups have already put this in motion. Two weeks ago, 35% of founders we surveyed reported they’d frozen hiring. As of April 9, that had risen to 47%.
If you have an aggressive hiring plan, especially in sales and marketing, consider pausing or reducing if you haven’t yet done so. Unless you’re in the segment of companies that will benefit from the current state of affairs, companies and individuals will be buying less. You very likely may have all the team you need to accomplish a reduced revenue plan for the year.
What other founders are currently thinking: Back on March 24, only 16% of founders surveyed reported they’d made salary cuts. As of April 9, that had risen to 23%.
If you haven’t yet, consider cutting executive salary as a way to show your team that everyone is feeling the pain. You may be able to pay it back in the future when the balance sheet is stronger. You can also think about increasing equity as you look to decrease cash spend. Reducing 401k matching and forgoing bonuses for the rest of the year is also an option.
However, one CEO we know pushed back against this idea: “I don’t think salary reductions are the right path. No matter what they say, people never feel good about it, they’re always looking to get back to normal and be made whole, which is understandable. Don’t promise it’s ever coming back, that’ll stick in their mind and you’ll be boxed in.”
When layoffs are announced, it will be the hardest day in any young startup’s history. It’s incredibly difficult to say goodbye to the exceptional individuals you handpicked and hired, the ones who’ve helped you get the company to where it is — and of course, unimaginably distressing for those who are affected. It’s also important to recognize that letting team members go today, in April 2020, is fundamentally different from a layoff under any other circumstances, given uncertain future job prospects.
As First Round’s Bill Trenchard notes, there’s also the challenge of taking hard questions on this topic. “‘Is my job safe? Are you going to lay me off?’ Unfortunately, no one can promise absolutely not. That’s not true for any situation, in good times or in bad. But you have to know how to deliver that message. You can say, ‘We don't expect that. Here's the data we see. Here's how we're looking at it. And if there’s any change, you'll be the first to know. We're going to do everything we can not to make it a surprise for anybody,’” he says. “It’s like this tiger is lurking behind you — folks want to know that they’re not going to get jumped from behind.”
If you do decide on layoffs, try to ensure you don’t need to do another round. Also, consider that furloughing is an option.
Two weeks ago, 7% of founders surveyed reported they’d made a reduction in force. As of April 9, that had risen to 19%.
