In an economic climate like this, layoffs are a necessary evil. But what most founders don’t realize is that you shouldn’t just optimize for efficiency — you must treat people with respect.
Layoffs are terrible, but they don’t have to destroy a company’s culture or reputation. If you handle them properly (like the one we ran at Carta in 2020), layoffs can improve your reputation and morale. You have to optimize for humanity, not just efficiency.
Here are 10 steps to running humane layoffs:
Update your financial model
What is your current burn multiple? What do you expect top-line revenue to look like? Make a conservative estimate and build in a buffer in case economic conditions worsen in the next six to nine months.
Figure out how much runway you need. The delta between where you are and what you need is the amount you’ll need to cut.
The more ownership the CEO takes of the situation, the faster the company will recover.
Narrow your focus
Now is not the time to be spinning multiple plates. Focus your company on the one or two things that matter most and eliminate all nonessential projects.
Cut all non-headcount expenses
Yes, about 80% of a company’s budget is concentrated in headcount. But before you start cutting employees, reduce your non-headcount operating expenditures as much as possible. What contracts can you kill? Where else do you have frivolous spending? Every dollar saved is a dollar that could be invested in your team.
Cut once
And tuck in your top performers. Another thing Better did wrong was multiple rounds of layoffs (three in five months, to be exact). One round of layoffs hurts; more than one round devastates a company’s morale.