Handling Layoffs

There are many lessons I learned while working at a startup. The most difficult was how to deal with layoffs. This was my first real exposure to a mass layoff and I really wasn't ready for it. In business school, you talk about downsizing in a very detached way; you're simply aligning costs with revenue. People ask you if you think you're ready to make the hard decisions, and sitting in a classroom it is very easy to say yes. In real life, it's a lot harder. It's hard because you know that for a period of time you are going to disrupt the lives of people you care about; your coworkers and your friends. You know that the financial impact will be a burden on them and in some cases you know the timing couldn't be worse. When you let people go unexpectedly you disrupt their lives, you create uncertainty and you create fear. Dealing with the emotional side of layoffs isn't a skill anyone can teach you and it isn't as simple as saying yes in the classroom.

I feel it is important to share what I learned because I think it can help others but it is not meant to be a recipe or a cookie cutter. Everyone has their own style and personality, and what worked for me, may not work for you. I didn't go in to this to figure out how to game the system or how to solve this like a puzzle, I simply found a path that worked for me and the staff and that let me sleep at night.

Days after I took over as GM for CellExchange our customer decided to reduce funding on our major program. They decided to fund one of the 5 projects currently under development. The impact to the organization was dramatic. Two projects were canceled immediately and one was cut in half. Of the remaining two, one was just about done which meant we'd be going from 5 multi-million dollar projects, to one. Needless to say, I went into crisis mode and took immediate action. I tried to cut costs before targeting the staff but quickly realized that given the size of the impact I'd have to let go a large percent of the team.

I had just taken over so I didn't have a worst-case scenario in my financial projections. I quickly created a financial model based on likely end dates for all projects and devised a worst case plan. The contractors were the first to be impacted, and I let 30 go that day. Having been a contractor, I know that you are paid a premium for flexibility so I was less sympathetic when a few were upset about being let go without notice. Most took the news in stride but some got frustrated and unfortunately we had to escort some out of the building. I'm opposed to having to do this for I believe if you treat people with respect, they will return the favor but in the end that wasn't the case.

After we let the contractors go I focused on the staff. The real challenge was that I had to act quickly and I didn't have a ranking of the staff based on skill or seniority. I decided to let people go largely based on project. I say largely because I was hoping that our customer would change their minds and fund some of the projects in the future. I created a small bench for these projects with people capable of restarting quickly. After I created this list I figured out the maximum number of people I could afford to employ with my current revenue. I then created the list of who to let go. I delegated the task of communicating this to the management team along with HR. For whatever reason, the first person to be let go had a mini breakdown. This escalated to the point that we had to have security come in and help out. I wasn't sure how this deteriorated so quickly but I vowed that I would handle the communications from then on. I didn't want the managers to have to experience this, they had enough stress, and I wanted to make sure the message and tone were properly communicated. If something went wrong from that point forward I'd only have myself to blame.

After we made it through the list, I tried to do exit interviews. What I found was that the layoff came as a total surprise to them. They were also surprised that they were the ones chosen to be let go. It was the suddenness and the feeling of being caught off guard that really upset them. I thought they would understand. I thought the financial situation was obvious but I learned that they didn't have enough information to know how the finances translated to their level.

To try to solve this problem, I decided I had to do more planning to identify best case and worst case scenarios. With the models, I communicated to the project teams what variables drove them in order to impress on them how they could influence the outcome. I really tried to get everyone aligned around ownership; one team, one fight. In doing this, I also shared with them what each scenario would mean to them individually. If the worst case scenario hit, the staff knew if I'd let them go or move them to another project.

Well, we hit a worst case scenario about a month later on a project and I had to let the team go. When I did, I didn't know what to expect. I guess I still expected people to be angry with me and the company, but I hoped that they were better prepared. The feedback I got afterward shocked me. People were genuinely thanking me before they left. They were thanking me because they felt that they were treated fairly. They had taken personal ownership for the outcome because they knew what was expected of them and to a person they realized it was a team effort to win or lose. By planning, communicating and getting the teams really involved, we eliminated the surprise factor. They appreciated being treated with respect and they let me know it.

Though the process got better and though the staff understood and accepted the situation, there was one more really hard moment after the completion of the one of the projects. The team had to work nights and weekends to bring the project to a successful close and they did a great job. They did everything I asked of them and more. The problem was that I knew there wasn't another project to put them on so I had to let them go when they finished. Knowing that people were working so hard and that I would have to lay them off anyway was the most dissatisfying thing of my career. I hated the situation but in the end, what else could I do?

There were a couple of other things that I think helped out. Whenever letting someone go I always gave them the option to work through severance to maintain their health benefits. I also offered to use their severance pay to pay them over an extended period of time (part time pay) so that they were still 'employed' in case they wanted continuity on their resume. Most didn't take the options but some did and I believe all were grateful to being able to choose their exit strategy.

So my advice is to always be ready to act, not react, to bad news. Over communicate with the staff and treat them with respect. Let them know what they can do to help avoid bad situations from occurring and make sure they feel a sense of ownership for the outcome. When things do go wrong, make sure you give people options. Let them know that the layoff was a shortcoming in the organization, not the individuals. And help them in their job search with whatever company or personal resources you can.