Layoffs Suck -- but Sometimes They're Exactly What Your Company Needs

By Dave Schappell, CEO, TeachStreet.com, Seattle
I launched TeachStreet, a startup focused on helping people find local and online classes on thousands of topics, in 2007. I raised $2.25 million in venture funding at the start of 2008, and hired a dozen employees. By mid-2009, the money was starting to run out, and we needed to raise more funds. The company wasn't profitable yet, and potential investors told me that I should pare down expenses and work on polishing the product before trying to raise another big round. So in order to ensure our long-term sustainability, I made the difficult decision to lay off nearly half of my staff.

Who to cut
My employees were all great at their jobs. The issue was that some of the positions simply didn't make sense anymore. We'd initially envisioned building localized communities in different cities, similar to Yelp's model, so I'd hired a few community developers for specific regions. But we'd decided not to follow that path, and were in the process of re-thinking what the company was about. I didn't want to do any marketing or business development until we understood what we wanted to offer.

So I decided to eliminate all of the roles that weren't central to the development of the product itself. I kept mainly the employees in highly technical positions, such as engineers and developers -- people with Web DNA -- so that we could perfect the product before we started thinking about expansion.

Making layoffs
After I'd committed to making layoffs, I knew I had to do it within just a few days. I didn't want my staff to have time to worry and gossip about it.

I emailed each staff member the night before I planned to make the cuts. I asked the ones who'd be staying on not to come into the office until noon, and told the ones who'd be laid off to be at the office by nine.

At nine the next morning, I sat them down in a group and told them directly that we'd decided to refocus the company, and they were all laid off, effective that day. Afterwards, I met with each of them individually to discuss their severance packages and provide them with assistance finding new jobs.

I gave them the morning to clear out their desks, and told them the rest of the team would be back at noon. Some of them stayed to say goodbye and went out for beers together afterwards -- there were some tears. In such a small company, these people were all friends and cared about each other, so it was an emotional time.

It was difficult for me as well, but I kept my distance from the staff. I knew it wasn't my place to commiserate with the employees I'd laid off.

My one mistake
I know other founders who've made layoffs, and they told me to be direct, honest, and spare them my own emotions. It's not about saying, "I feel terrible. I know how bad this is." You need to skip all that. They're thinking, "You don't know how it feels. You still have a job."

I'm glad I took that approach, with one exception: One of the staff members I laid off was a friend I'd worked with at my previous job. I had assumed she'd seen this coming, but she was caught off guard. I hurt her by taking such an impersonal approach, and we're still working to mend that wound.

A renewed focus
Afterwards, I was concerned that the layoffs would hurt the morale of the remaining staff. It was a hard day for them, but they told me they'd appreciated how I handled the situation, and there was no lasting animosity. The staff members who'd lost their jobs were highly skilled, and weren't out of work for long: Three of them got new positions within a week.

Cutting back the team jump-started our productivity. Suddenly, everyone was involved in developing and discussing features -- they didn't need to run their ideas by a product manager as they had in the past. We were able to work quickly to streamline our product toolset.

We received a small round of funding immediately after the layoffs, and that's been enough to carry us through to rapid growth. Now we have significant revenue, and we fully expect to be profitable by the second quarter of this year.

If we hadn't cut back our team and honed our product, I think we'd be bankrupt now. Instead of focusing on the tactical and technical sides of the company, we would have gone out and hired 50 people and kept making the mistakes we were already making.

Dave Schappell writes a personal blog about life and start-up issues, No Snivelling.

-- As told to Kathryn Hawkins

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