Laying off employees, how not to do it and the entrepreneur experience

One of the most important areas in entrepreneurship, perhaps even the most important, is team management. There are situations when the entrepreneur has to fire an employee, due to performance or entire teams, due to cost-cutting measures.

For me, this has always been a very emotional moment. It's about people, it's about relationships. If I've had sleepless nights, it's usually been because of the relationship with these team members. Valentin, you've built several B2B software companies, some with over 100 people, hyper-growth and then again in the other direction. You worked with the teams, especially in product management as well. If everything didn't go so well, what was the reason that you fired numerous people or even whole teams?

Why lay off entire teams?

The reason has actually always been that I needed to cut costs massively. Because you might not have achieved the growth story, or you were afraid of the recession. Then I felt I had to be able to survive longer with the existing money until I could get new money again. Or maybe financing rounds didn't work out, and you were forced to find profitability faster. So, there had to be a hard cost cut.

The approach to lay off entire teams            

When you lay off entire teams to cut costs, how do you go about it? What is the basis for decision-making there?

You take a top-down approach, you look at the budget, and you then see where you need to put your costs. Revenue is relatively fixed and once you know where the costs have gone, then you consider in which department where how many people are essential, and then you see how many people in which departments you need to cut. Once that's clear, it's determined which employees I have to part with, which ones make sense, which ones are important and essential in the next phase and have the appropriate knowledge.

How not to do it

So you've identified where the biggest cost pools are. You've identified which employees are essential to the next phase? So how do you do it wrong

I wouldn't do it right, for example, if you put all the employees in an Excel and sorted them by salary and then just cut certain people. That's not a good approach. Even if you go by who has been there the longest and just get rid of the newest employees. Because that may not be in line with who can create a good impact.

Taking the risk of popping

That is, you start from the target organization. That's been thought through, revised, and if you're really confident in that decision, then you have the plan. Now, however, it is often the case that when the decision has been made, those who remain then partly want to rush forward and hold on to what will be. But then there are the others who may be the ones who row back due to inaccurate information and hold on to the tried and true system. How do you make sure that doesn't tear entrepreneurs apart?

This is certainly a difficult example, which I have also witnessed. If you don't know how many people will be laid off, have to and then always just want to lay off the minimum. Then monthly in the last few days at the end of the month, again a few dismissed. After the second or third month, the mood is miserable, poisoned and negative, so that everyone expects it, especially those who have the feeling that they are on the brink and then take sick leave or become cynical. Then it is very difficult to get a positive spirit.
 

What does the right process look like?

And how do you do it right, is there a process for a team to come together afterwards as well?         

It is essential to also try to get this as right as possible so that there is no uncertainty. From experience, employees are not entrepreneurs and assess the situation more negatively. That's why communication is key. How we did it, for example, when we did it better, we were some who we wanted to part with and who we didn't want to part with as well. Who we want to keep and who was also important for the new organization. Then one day before the official communication we talked with those we wanted to keep, in 1:1 meetings and explained what will happen now, what is the future situation. Of course, we explained that this is also a difficult situation, but mainly why we wanted to keep them and how essential they are in the future roles. That then also led to maybe certain people receiving contrary information and then getting promoted and getting a better role. They then became team leaders because we were counting on them. Even a raise has been given so they don't look for a new job. Usually, it is the good people who find a new job the fastest and you want to avoid that. These people have then also already known what is coming and the next day one has informed the others from whom one has parted. It is important for the future organization. You only work with those who are staying and not with those who are leaving. And you can do that cleanly, but you still have to invest a lot of energy in those who stay because those are relevant to future success.

Maintaining the Drive

You have negative news, but still you just try to communicate the new target organization and pitch that vision. How do you do that, that the drive stays for the team and that this is also accepted by all?           

Of course, that's difficult. So, I think that would be then High School, that then people even motivated to go, where you always have to see, people are different. You often do not know how people will react. I have often had the experience that the people who stayed or were perhaps just promoted often saw it as an opportunity. They have also seen that they are given more responsibility and have also seen that there were many inefficiencies before. And they want to solve them. These inefficiencies may have made the team or the entire company slower and more complicated. With the new organization, you get back into a start-up groove and let people get to work again. Now we're pulling the cart out of the mud together. It's primarily about the authentic message of what works and that you also believe in it yourself. So that one knows, I make now this for these reasons and gives this in such a way. So the recipients make themselves with it, what they want to hear and mostly that worked. Not always, especially when one has announced things oneself and then could not keep them. For example one said that nobody more must go and then one had to separate nevertheless once again from an employee.

Exempting a single employee based on performance

When it comes to an employee, you've been discussing it for a long time in the management team and wrestling and pushing out the decision. Experience shows that the decision that someone has to go doesn't come too soon.In the case that someone has to go if the performance isn't right, can you say what that process looks like?

I think it's easier when you part with someone because the person doesn't thrive in that role or can't meet expectations. You can then explain that to everyone rationally. That's still important, and at the same time it can be a sign for everyone else that you can just fulfill your expectations that you have of the job. If you don't do that, it can also give the feeling that it's quite alright if you don't try so hard.

Communication

So sending the calendar entry, where it then says "Outlook" and then suddenly the person is invited to the termination interview by surprise, that's not ideal?        

No, I think in both cases it is also still important that it is fast. In reality, it's then the people who can also guess that they don't bring the performance or are also not so motivated in the matter. They should actually anticipate this. If they know that there is a wave of layoffs, these then perhaps even take the opportunities to prevent or circumvent the dismissal if possible. For example, let them take sick leave or that they then simply don't come and they can't be found, so that the actual dismissal can't even be pronounced. You should anticipate that and then have some element of surprise. If you have a team, you can do it together and not just schedule it with one person. Then you make a calendar entry with several people or you already meet with two people you don't want to part with beforehand. It shouldn't be so noticeable if you don't keep the rhythm, with a meeting that you already have. And then also spontaneously, if you're not working in a remote setup, just go up to the person at the table and ask, "do you have time and can I have a meeting". That has also worked well.

Firing employees on remote teams

You've been working with remote teams for 20 years, and there you can't spontaneously sit down at the table and have them sign off on the termination. How do you do that with remote teams?

I think there are different situations there as well that certainly make it much more difficult. One is, of course, it's better if you visit the remote team on a regular basis and you can connect that so that you do it in person. If that's not possible, then you might have someone on site, the team leader. He then has to arrange it with that person, the person then does it in person. Or a hybrid meeting. That has already proven successful. However, the other person must also feel comfortable and share the responsibility. If all of this is not possible, then I have already done it in such a way that I have done it via video call with the individual employees. It's often easier from a legal point of view because they are often freelancers or employed by another company. The conditions are then different than with Swiss legislation. Remote teams are mostly developers. The developers have usually received two to three job offers via LinkedIn and it is a very competitive employee market. So you don't have to worry that they won't find a job anymore, but it's about doing it cleanly, that you don't leave any bad feelings for the remaining employees. That you don't lose the good ones, because developers also often have a tendency to be anxious and then are actually overcautious and assess things too negatively. It must not be non-transparent and you would rather not have the feeling that then the good people who have many options disappear immediately. So it's important to pick everybody back up and explain and bring as much transparency into it as possible.

Offboarding

When the termination is now pronounced and the offboarding process starts: What should be considered there?   

This depends on the position, whether you have customer contact or whether you have access to sensitive data, for example. That has to be prepared. It's often a bit messy, especially with startups. The regulations are not yet so clear, many may still have access to live data. Here you have to think ahead as much as possible, that it then also in the emotional at the moment not the whole customer database be copied or that a developer can do something. We have frankly never experienced that really anything negative happened. Not even in my larger companies. But you don't want to take the risk. Especially not if you're working in an area, with more sensitive data and new, with GDPR it's even more sensitive. Also if employees talk negatively about you, of course that can give negative publicity. This then also helps no one.

The right communication

How do you manage that after the termination date the communication is still there? Is there any support you offer to the former employees?

I think predominantly with these employees that you lay off for economic reasons, you can help them find a new job. Especially in the start-up environment, you have a network where you know who needs other people. You can offer to do intros for other jobs. But I would also always ask if that's what that employee wants. Don't just send the CV around without being asked. But I must also say, all people have always immediately found a job and often even a better one, where they then earned more or where they may have risen even more. That has then also taken down the inhibition a bit, there are always many ways.

Recruit former employees

The startup environment is, after all, relatively small, especially for SaaS ventures as well. They are always looking for people in marketing, sales, development and customer success. Often you meet there again the former employees, would you hire them again?

Yes, that's just the important thing about it. It's a small world and then you run into these people again. That's why it's important to clean it up. So that you can look at yourself in the mirror. Even if you don't hire them again, they might talk to others and you want them to say, "it may not have been cool, but at least they cleaned it up." That's also kind of a recruiter marketing when you part with people. There's a famous example now where an insane number of people were laid off from a big company and then had to rehire some of the same people. This also shows that you plan chaotically or that you sail very close to the wind. If you grow, hire maximum much and then when the growth is gone, these again rauswirft. Everyone must know for themselves how the culture should be and then be consistent there. We have always tried to hire only as much as are needed and for that then also only then dismissed when really safe.

How to deal with it personally when the world is against you

You explain how to do it right when you have to let employees go. But still, just the world is against you and it also takes you extremely emotional. Even if the decision was made on the basis of financial data. How do you personally deal with it?  

Nobody tells you thank you for these decisions. You made bad decisions and got the company there yourself. You couldn't achieve the plans. There it is essential that one operates there self-hygiene and one finds a way, how one can build this lastingly. Everyone is certainly times individual, as one gets to know himself well. For me, a few things have worked reliably: If one has had Co-Founder, I have sought the conversation and made the decision together. You reflect again in an honest exchange. I also did a lot of sports. After those difficult days, I went running or did high-intensity training. So that the body also gets positive feelings. Also, when I knew a difficult month or a difficult phase of a turnaround was coming, I set myself a lighthouse project. That's how I booked the vacations with my family, girlfriend or colleagues and knew that I had something to look forward to. But everyone is individual, it helped me that way and then I was able to recharge my batteries and get my thoughts in order.

The Key Takeaways

What is your key take-away when it comes to team management and you need to fire people en masse?         

The most important thing I think is that you plan it well, that just not any ad hoc decisions are made. Then it must be done quickly and effectively. This also starts with the interview. When you meet the employee for the interview, that you say hello and don't make long small talk. You "frame" the conversation, it is about parting ways now and that the decision has been made. It is not a negotiation. That it is then also not about the reasons, but about what happens now. Whether you have to hand over the computer, whether the employee is then released or can take time off. It has always worked well to give employees the opportunity to process the decision themselves. Then you can offer to talk about it again later to explain the reasons in detail. When it's not so emotional anymore, you can also point out the options, help the employee find a new job and make intros. Most of the time you can also explain that you are giving a good reference because it was the situation that came up. It was not a personal decision against the person. That actually always creates mutual respect, I think. But also the employees we laid off all found new jobs in a very short time. They ended up in a similar environment and often at a better job. My experience is that it is not at all the end of the line when an employment relationship dissolves.