10x Layoffs
First things first. Layoffs feel bad. They feel bad for the people impacted - as they find themselves out of their jobs without much of a warning. They feel bad for the managers who are responsible for coming up with a plan to reduce the operating budget by eliminating certain roles. They feel bad for the company as the aftershocks of these events continue to chip away at the company image for a long time after the layoffs.
It doesn’t help that despite layoffs being part and parcel of the high tech industry, there are so many poor examples of handling these critical events. In recent history, better.com takes the cake on possibly the most insensitive way to orchestrate layoffs.
On the other side, we have Cisco, which primarily relies on acquisition of startups into new/adjacent spaces to drive growth for their business. Now, in order to maintain their operating expenses, a bulk of these acquisitions are funded by trimming excess from their existing steadier businesses. Cisco also takes, to my knowledge, most inclusive and humane way to handle what they call “limited structuring” on a fairly regular basis - in the latest incarnation of this event, employees had a choice to take an early retirement package, or 20% reduction in work and salary, before some of these roles were eliminated. This saved the company $1B in operating expenses.
I wish to argue that in a capitalist economy they’re also inevitable course corrections. But before we deep dive into that perspective, here is some great reading on handing layoffs by Swapna Savant.
Coinbase Conundrum
Reproducing excerpts from this wired article…
ON THE THURSDAY before he was supposed to start his new job at Coinbase, Sam Maher got an email with the subject line “Update to your Coinbase offer.” The update was that there was no offer. In response to “current market conditions,” the startup had eliminated a number of incoming positions, leaving Maher suddenly unemployed and feeling like he’d been broken up with by email.
The same email reached hundreds of other would-be Coinbase employees, who had start dates ranging from the following week to late summer. Vijay Duraiswamy, a software development manager, had already started the onboarding process on a company-issued laptop. Others had signed leases, moved to different cities, or taken expensive vacations to celebrate the new job. Now, Coinbase was offering some severance and an apology.
By the end of the week, LinkedIn was awash in posts from Coinbase’s rejected workers, who seemed angry and confused. Coinbase had planned to hire 2,000 employees in 2022, and had already onboarded about 1,200 by May. If the company needed to scale back, shouldn’t it have done so before making so many job offers? “
Of course what followed this incident and pervasive frustration on social media was 18% layoffs with the CEO citing upcoming “crypto winter”. To put these numbers in perspective, Coinbase parted ways with as many employees as it had hired within the last year. So, extending the question above, Was this just a massive planning miss or an irrational exuberance?
Get Busy Growing or Get Busy Dying
In the context of planning, all growth is anticipated growth. That roughly translates to hiring strategy tied to a future recognition of revenue. At the time of hiring though, all you have is models, projections and in healthy businesses customer commitments. None of these is to be confused with “money in the bank”. In Business if You're Not Growing, You're Dying.
“No matter the size of the company or the growth trajectory, these new positions are being added based on the projected revenue growth for the company. To hire that 11th employee, a company's financial team is projecting that there is enough revenue to support that employee into the future. The same logic applies to a company adding 1 or 5,000 new jobs at a time.”
What helps with this bullish outlook is that most of the time the economy has been growing. So, it’s a great bet. Also, leaders are inherently optimistic. I’d also argue that optimism is a great secret ingredient that results in growth as a self-fulfilling prophecy.
But as you can see, most of the time doesn’t mean all the time. So this bullish outlook for the future works, until it doesn’t. And having a bearing outlook is particularly punishing and often self-limiting for leaders and businesses. Say, despite a rosy outlook, you don’t decide to invest in your business. Your competitor, who is willing to take this risk and invest, will out innovate you, and outcompete you - resulting in loss of customers and revenue for you. This is how your lack of belief results in self-fulfilling prophecy - doesn’t matter which side of the bet you’re on.
Let’s talk about incentives. No CEO gets hired to maintain the business. In fact, most CEO contracts stipulate that the revenue/profits need to double every 3 years. This unleashes a series of decisions within an organization to drive hyper growth strategy which forces all leaders to take risks, and they’re evaluated by how they manage those risks. If you’re playing by the sidelines, you’re risking your job and growth.
Controlled Expansion
Now that we know the inevitability of boom and bust cycles in capitalist economies, how to best navigate it? I would advocate for controlled expansion - this is not to limit your ambitions, rather supporting your ambitions with a great operating discipline and financial prudence. It’s about closing the loop on your business projections. It’s about resisting the temptation to build a house of cards. It’s about building the guardrails. As a leader, you should always have a clear assessment of various risks you’re taking, and risk payoff schedules. When you’re past the due date for realizing wins from your bets, you need to cut your investments early and often. This may allow you to reallocate your capital in other areas where risks are starting to pay off. There is no silver bullet though. Capitalism is creative destruction - i.e. new markets are created for which there is no precedent, and coming back to Coinbase, I’d venture into a position that despite the best intentions and plans by the management, the inherent uncertainties of the underlying securities and their business model, it’s extremely difficult, if not impossible, to build all the guardrails. In many ways, the sudden shock was entirely inevitable. The silver lining is, now, we understand the markets a bit better and we have some precedent to design those guardrails.
10xManager