“We went from 120 people down to 12. Laying them off was incredibly hard.” We’ll call this founder “Jim.” When I spoke with Jim recently, he looked tired but determined.
Jim was doing everything to keep his company alive. That meant getting rid of most of his team.
Cutting Off a Finger to Save a Hand
“Have you ever seen the old TV show Kung Fu?” I asked.
“I don’t think so.”
“Master Con says ‘Sometimes a finger must be cut off to save a hand.’ That’s what you did. If you hadn’t laid those folks off, no one would have jobs.”
Why Jim Laid Off 90% Of His Company
When we read news stories about layoffs, we think, “What a bunch of meanies. How could they take away those poor people’s jobs?”
Wait until you sit on the other side of the table.
Growth is flat. Cash is running out.
Jim was already taking a sharply reduced salary. It was barely enough to get by.
You either cut payroll, or the whole ship sinks.
How Layoffs May Save Jim’s Startup
I actually encouraged Jim to lay off even more people.
But even at 12 employees, the smaller payroll bought the company time.
Jim was able to close some additional investors. It looks like the company has a good chance of surviving.
When To Do Layoffs
If your company isn’t growing and is running out of cash, you’re not doing your employees any favors by keeping them on the payroll. In fact, you’re risking everyone’s jobs.
For startups in this position, the only solution is taking an axe to the cost structure. And costs are mostly humans.
You can be popular and keep everyone on board until the cash runs out. Or you can be a leader and save the company.
Wrap-Up
When you started your business, you dreamed of ringing the bell at the NASDAQ. A few years in, you’re laying off most of your company.
How the heck did you get here?
Finding product-market fit is extremely difficult. Along the way, you may over-hire and have to cut back.
When a company is in trouble, sometimes the choice is between 90% layoffs and 100%.
If you’re running out of cash, don’t wait until it’s too late. Take decisive action now.
With any luck, you’ll be able to rehire your team soon.
More from the blog:
You Finally Closed Your Funding Round — Time to Panic?
You’ve Got Your First Customer. Now, How Do You Raise Money?
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