Handling Layoffs in Startups

Many years ago, one of the startups which I co-founded ran out of money, and with the remaining resources we have, I was forced to lay off the remaining employees of the company which they do not deserved to be made redundant. That experience has traumatized me and from time to time, I reflected about the incident. It helped me to frame my thinking around hiring and how to advise people in similar situations. Here’s a framework which hope that it might be of help to those who may have no choice dealing with such difficult situations.

Recently, there are different articles on startups layoffs in the region. Startup layoffs are tough and can be daunting for both the employers and the employees. There is no right and wrong to startup layoffs and one cannot ascribe justice to that. Here are some thoughts on startup layoffs and what founders can do about it if you have to face that situation.

There is never a day where I will not forget about the day which I have to lay off all the employees in my startup six years ago.  The startup I co-founded was on the brink of collapse and the only right thing to do is to shut it down gracefully as best as we can, put the remaining resources to pay off employees for a month and then follow with the shutdown procedures from accounting to closure. Over the years, the wounds are painful in the short term and the scars etch in my mind from time to time.

What happened when I have to lay off people in the midst of a startup going down in flames? During that time, my co-founder (and CEO) of the company was not in the country and hence I have to do the hard thing by myself. The first thing is to make sure that the severance package is in place. We managed to have resources to do a month severance. Even when I have to put the bad news to them and do the layoffs, I could not stop myself from tears. Eventually, I did that, and at the same time, I have informed all of them that the next thing to do is to make sure that they have safe landing. Within 24 to 48 hours of the layoffs, I have contacted all the other startup founders I know in the market, and started to contact them if they are interested in developers and designers. I was willing to put the references in so that they could take these employees. Given that the employees are on employment passes in Singapore and have families to feed, I have to make sure that they can find a job. Probably I was lucky and offers did come to them but they have all decided to leave the country and head back home. I kept in touch with them even till today.

What can one do in such situations? Probably, through going thru such a traumatic experience, I will suggest a few things. First, make sure that you go thru the employment contracts and prepare the severance contracts that address the layoffs in a fair and compliant to local manpower laws in the country.

Second, you have to be honest that as a co-founder or owner of the business, you have failed and explain to them upfront why your company need to shut down. In the case of laying off to ensure the company is sustainable, just tell the truth and explain the rationale to why you want to do so. People want the truth and you should tell the truth. If press outlets put a story to your startup, it’s fair game. As I have said many times, I don’t have a problem with the press covering startups failing in positive or negative light. What I despise is when a journalist violates the trust and lied about the discussion. I was asked by a journalist and I have repeatedly told him that I would not discuss the shutdown of the company. The journalist lied and asked me to chat on the shortfall of series A funding in Singapore. I have reluctantly agreed and of course, he wrote a different story. As a result, I have blacklisted the journalist and will never speak to such a low life again in my life. At that instant, I owned a media outlet and it was fair game that the outlet that I owned, also covered it as well. We just threw a party at our own expenses (without company money) to bring the journalists in and told them that we were shutting the company down. If you are an employee who believes that you are laid off in an unfair manner, you have the right to go to the media outlets to voice your story. Do take a step back to understand why the layoffs are done and if the founders of the company have treated you fairly.

Third and this is dependent on your perspective as a business owner, some people do not see that it’s their responsibility to help the the laid off employees find a job. For one, I do see that it’s my responsibility and it’s about how we lead people. If we don’t know how to lead people properly without seeing that responsibility, then you should not be running a startup. I spent a significant amount of time to ensure that each employee that I laid off gets three interviews at least, and I was only thankful to the other startup founders (even competitors) who were willing to take a look, and they tried their best to accommodate the request at such short notice. By the way, all the laid off employees were given jobs within that 24-48 hours cycle, and I was thankful that many have come to our aid. The other startup founders were also upfront to tell me straight that they cannot hire as well.

Oftentimes, I think about what I can do differently. As a result of that incident, even in my corporate roles, I have avoided hiring too many people too fast and too quickly. I kept within my budgets and put a workload measure before I want to assign a headcount to it. At the point when I have to lay off people, I was not married. Today, I am married with kids and that additional knowledge also factored into my calculus in what I need to take into account when hiring other people. When we are employers, we have the responsibility for our employees in the form of providing a proper working environment, unlock resources to how they can complete the tasks to their job and at the same time, ensure that they can reach their goals and targets. If they are not up to the task, firing them is justified. At the back of my mind, even I am in a corporate role, I always have a backup plan in mind if my business unit is forced to shut down and lay off employees from me to my team who do not deserve to suffer such a fate.

When I interview startup founders who come to me for corporate roles, I often ask them about their experiences in laying off people. It gives me an indication on how they conduct themselves during such times.

As for myself, years later, the story did have a happy happening for one of the employees. I met one of the former employees who I have laid off during an event in Thailand recently in May 2018. I am aware that he was involved in startups after he moved back home. We have not met in years. So when I was at that startup event in Thailand, I just thought of him and dropped him a message that I was in the event, and wondered if he’s keen to meet. He responded and came within an hour just to meet me. When I saw him and asked him how he was, he told me that he’s now the head of engineering for a startup company growing well in Thailand and I am just happy for him to do so well, even though from time to time, I have to reflect on how to deal with such a situation in the future.