Key Factors Founders Should Consider when Navigating Layoffs
By Jennifer Dulksi, Founder & CEO of Rising Team
In the turbulent landscape of 2023, navigating layoffs stands out as an especially emotionally charged journey for founders — one that many are grappling with in the shadows of a challenging macro-environment.
We tapped GSB Professor Jennifer Dulski to share her perspective on executing these decisions and leading teams through the aftermath. Jen is also the founder and CEO of FFF portfolio company Rising Team — a SaaS company helping companies increase engagement and scale talent development by helping managers to lead team development sessions. Prior to Rising Team, Dulski held leadership roles at Facebook and Google.
Drawing from her own experiences building and managing teams and her experience teaching, Jen has compiled her best advice for founders navigating the waters of difficult team decisions amid this year’s tumultuous landscape.
Leading through a downturn is one of the most formidable challenges you may face in your journey as founder. (And as hard as it is on you, it’s harder on your employees — more on that below.) When your board is mandating cost cuts and reductions in headcount, the burden becomes even more complex, demanding a delicate balance between strategic decision-making, empathy, and transparent communication.
Whenever possible, especially in challenging economies, it’s ideal to keep burn low to avoid layoffs, since they have a significant cost to employee morale. However, when that’s not possible, it’s crucial to approach the layoff process with a clear plan, recognizing the impact on both individuals and the company’s overall dynamics.
Your objective is not just to meet the board’s directives and your budget targets, but also to guide the organization through a period of change with compassion and resilience.
There is no magic answer here, and I am saddened that so many people are affected by layoffs right now. I (unfortunately) have quite a bit of experience with this over many cycles of economic downturns, and also teach about this topic in my class “Managing Growing Enterprises” at the GSB at Stanford.
Here are a few best practices on thoughtfully executing layoffs.
1. Prepare a Comprehensive Plan
- Outline the specific reasons for the layoffs, such as financial constraints, changes in business strategy, or market conditions.
- Use clear, fair principles to decide who will be affected. Cut deeper than you think you need to, so you only need to do this once. It is a very high cost to morale to do multiple rounds of layoffs.
- Make a complete list of all that needs to be done. Prioritize the list based on a) importance to mission and b) highest needs/urgency, then decide which tasks can be delegated, and properly prepare the team.
- Move quickly in a small circle to get good legal advice.
- Ensure that the layoff process adheres to all relevant labor laws and regulations. Consult with legal counsel to mitigate potential legal risks and ensure a smooth transition.
2. Communicate Transparently and with Compassion
- Prepare a company-wide communication to inform the company of the news transparently and honestly. This can be in person or in writing if not possible to do live due to time zones.
- In the communication: Take responsibility for the decisions that led here as the leader, acknowledge any missteps that may have led to the need for layoffs. Don’t bury the lead, tie decisions back to the mission and values, show empathy for the challenges and feelings people may have. Create multiple options for people to check in, ask questions, express emotions. Have key messages and FAQs prepared for all leaders who may get questions from their teams.
- Keep communication channels open for ongoing updates and questions.
- Be visible and accessible during the transition period. Employees will look to leadership for guidance and reassurance.
- Reassure remaining employees about the company’s commitment to their well-being and the continued success of the business.
3. Provide Support
- Be as generous as you can be in offering severance packages and extending healthcare benefits to ease the financial burden on those being laid off.
- Arrange for HR representatives to be available for one-on-one sessions to address questions and concerns.
- Offer resources for affected employees, such as career counseling, resume-building workshops, and potential references.
4. Reflect and Learn
- After the layoffs, conduct a thorough review of the situation. Identify any lessons learned and areas for improvement in the future.
- Use the experience to strengthen leadership skills and enhance the company’s resilience.
The way you manage layoffs can significantly impact the company culture and the morale of remaining employees. Approaching the situation with empathy, transparency, and a focus on support can help minimize the negative impact on both those being let go and those staying with the company.
Here are some tips on what comes next…
Treat outgoing employees with dignity.
One of the factors that remaining employees care about most is how their colleagues were treated upon their departure. Most companies doing layoffs now are offering fair or generous severance packages, COBRA, etc. Additional ideas that can make a difference are tactics like creating official alumni communities and offering support in job searches by promoting lists of departed employees, as Airbnb did after their pandemic-related layoffs.
Share in the pain.
One way to help employees see that leaders are taking accountability for their role in layoffs is for leaders to make some sacrifices as part of the process. Even though these are likely to be symbolic, rather than significant cost savings, the statement they make can be meaningful. For example, when Zoom laid off 15% of its employees in February, its CEO, Eric Yuan, took a 98% pay cut and said he’d forego his corporate bonus.
Be transparent to rebuild trust.
The remaining employees want to understand answers to big questions: Why did this happen in the first place? How can I know whether it will happen again? How did you decide who was let go and who wasn’t? The more transparent a company can be about the principles involved in the decision-making process, the more it builds a sense of trust and lowers fear and suspicion. If employers aren’t sure that this is the last round of layoffs, they should be open about that as well. Even though it may not be the answer people want, honesty will increase trust rather than deplete it.
Create open, safe spaces to connect.
People will want to ask questions and talk about how they are feeling, without fear of repercussions. You can open the lines of communication between employees and leadership, both one-on-one and with group events like virtual and in-person town hall meetings. You may also want to run an anonymous survey to get a read on the current sentiment and top needs of remaining employees.
Help managers support remaining employees.
Much of the day-to-day work of picking up the pieces after a layoff will fall to individual managers and the work they do to support their teams. Managers can help their teams by being available, giving people space to vent, and understanding the specific reactions and needs of each individual on their team. Tools like Rising Team can help managers bring their teams together to connect, build trust and grow their resilience as a team.
Invest in employee development.
After layoffs, employees may feel insecure about their own jobs. One way to show remaining employees that the company cares about them and help them feel more secure is to invest in their continued growth. This helps not only to reassure them of their future with the organization but also to improve their skills and capabilities for a stronger company moving forward.
Reinforce the mission.
It’s likely that many employees joined the company because they believe in your mission. If you can remind people that, though difficult, the layoffs give you a better chance to achieve the mission, then you can refocus people on their original passion that brought them to you. Share regular updates about plans and performance milestones to build confidence in the organization’s future.
In Closing…
Navigating layoffs as a founder is a challenging and emotionally charged journey. Recognizing the human impact of these decisions and communicating openly with your team can foster trust even in difficult times.
Leveraging available resources, seeking mentorship, and learning from the experience can contribute to personal and organizational growth. Ultimately, facing layoffs with courage, compassion, and a commitment to the well-being of both your team and your company can pave the way for a stronger, more resilient future.
