When unicorns become war horses: A layoff bloodbath is looming

The markets are underperforming, inflation is rising, a recession is rumoured, and now workers are becoming the first casualties of corporate attempts to stem cash flow. Consider the hatches battened: we’re officially in termination territory.

The latest trend to hit Silicon Valley isn’t sliders, spirituality, or soy beer. It’s unemployment. The Swedish BNPL firm Klarna is the latest to jump on the bandwagon, dismissing 10% of its workforce (around 700 staff members). 

There are a few nuances to this trend. Firstly, the percentages are common – Tesla is also cutting 10%, as is Winklevoss-owned crypto platform Gemini. Secondly, many firms involved are recent unicorns, having enjoyed explosive growth in the pandemic years or just before. 

But if you really want to nail the trend, you have to do things in the most impersonal way possible. 

Klarna CEO Seb Siemiatowski and P&O’s Peter Hebblethwaite opted for prerecorded video messages. Cameo CEO Steven Galanis and Better.com CEO Vishal Garg at least did it live via Zoom. It seems ironically like the video software Loom was the only one to put it in writing.

It’s not just tech. P&O Ferries sacked 800 UK staff members (again over Zoom), with no notice, and without consulting trade unions (illegal in the UK). 

Staff protested by refusing to leave the ships and some were physically hauled off by security staff. The public was furious, the tabloids were scathing. The move is being criminally investigated and was described in a recent hearing as a “fire and rehire on steroids”. 

As CEOs love to remind us, corporations aren’t charities. Redundancies are inevitable. They keep companies afloat and remaining staff employed. But the way business leaders are going about the cuts is – if not illegal – downright brutal. Surely there are ways we as founders can navigate things better? 

Why is this happening?

Vultures are circling the tech firms that spun gold out of global lockdowns. Ecommerce giants like Amazon and Spotify, SaaS like Zoom and Docusign, and entertainment platforms like Cameo, Netflix, and Tencent all multiplied market share and workforces during the remote revolution. 

Netflix was a particular pandemic darling, with locked-down streamers stapled to sofas. Having culled 150 staff members in May and a further 300 in June, It’s perhaps one of the most high profile layoff instigators, having lost subscribers for the first time in a decade. 

Now, not only are we relying less on digital connection, but global pressures like the Ukraine war, rising inflation, rising-bubble housing markets, cost of living crises, and the incomplete COVID recovery are all pointing to an economic downturn. 

VC firms worldwide have issued black swan memos, urging founders to extend runways where possible, slash expenses, and plan for an arid fundraising environment for the next 12-24 months. 

Those who aren’t firing are freezing. Uber, Meta, Twitter, and Salesforce have all ceased hiring activity. 

In recession events, companies switch from growth to survival mode. Investors deploy capital with extreme caution. The talent wars of the past few years and the abundant capital in tech sent compensation packages spiralling upwards. Now, expensive and expendable staff are the first outgoing to go. 

Envato

Layoff season has officially reached Australian shores, and no industry is safe. Employees of Healthcare tech firm Eucalyptus, BNPL provider Brighte, grocery delivery startup VOLY, and crypto exchange BANXA are among the casualties.

Envato has shed 100 of its 600-strong team. It’s not a move based on past performance – Envato posted a 14% rise in FY21 revenue, and a 76% rise in operating profit. It’s a direct response to CEO Hichame Assi’s predictions of a “more challenged” macroenvironment in the coming months. 

In his words: “We believe a renewed and sharpened business focus will ensure we continue on our long-term growth trajectory.”

Having been in the role for just 20 months, it’s telling to see a young CEO shift gears from growth at all costs to that good old long-term planning.

Loom

CEO Joe Thomas made the 14% reduction in Loom’s staff numbers to: “ensure we’re able to move forward sustainably, especially in light of increased economic uncertainty, and continue to deliver on our vision for years to come”. 

There’s more of that long-term talk.

Loom was a pandemic-made unicorn, built on the ever-increasing complexity of our digital communication needs. While Zoom was the great divider, Loom’s prerecording software saved video callers from the stress of scheduled meetings and the tyranny of going live. 

Loom’s ambitions remain big. Just this year it’s been busy personalising (a new home screen, video recommendations) and socialising (you can now follow and collaborate with colleagues).  

Like Envato, they’re not in trouble – they’re preparing for it.

Cameo

Cameo has been one of the highest profile culling cases, despite the 87 staff member headcount being somewhat dwarfed by, say, Better.com’s 900.

During 2020, Cameo’s gross revenue 4.5x’d. After receiving backing from Google Venture, SoftBank, Lightspeed and others, it achieved unicorn status. 

CEO Steve Galanis has made no bones about this.

To support both fan and talent demand during the pandemic lockdowns, Cameo’s headcount exploded from just over 100 to nearly 400…. Market conditions have rapidly changed since then. Accordingly, we have right-sized the business to best reflect the new realities.

Better.com

Vishal Garg has really not covered himself in glory recently. Forbes published an all-caps internal email from Garg to staff last Christmas telling them to “wake up” and that they were “too damn slow” and a “bunch of dumb dolphins” who were “embarrassing” him. 

Then he laid off 900 employees shortly after a $750 million investment contributing to a valuation of $7 billion. The reason? 250 of them were apparently committing time theft by working for just 2 hours a day. Reasons were unclear for the rest.

In March, Garg axed another 3100 employees. This time he did it simply by sending out severance cheques. Another undisclosed number of employees were let go two weeks later, to the rumoured tune of 1000 to 1500

He’s also just been accused of misleading investors! 

The moral of this section: don’t be this guy.

The moral of the broader scenario? Don’t base future projections on revenue during freak events. Better.com 10x’d their revenue in 2020. Last year, it lost $300 million

How not to be that guy

The most concerning common theme of this sacking season is not the callous handling by CEOs. It’s that the fortunes of these fragile unicorns were based on a freak event.

Between 2005 and 2010, 14 companies hit a $1 billion valuation. That’s why they became known as unicorns – they were rare. Between 2016 and 2021, 869 companies gained their unicorn horns. 

It’s almost like the techmania and whiplash-inducing growth trends of the past few years have been problematic. It’s almost like there would be consequences. Instead of strong, sustainable growth, overhyped valuations have left us in a paddock with a load of wild horses running around. 

Many CEOs will remain on their outsized salaries throughout the storm. The people who suffer are the workforces. As founders, there are ways we can be compassionate to this, and ports of call we can try before de-cruiting our workforces:

Prioritise reallocating resource. Consider which areas of the business need more investment to propel the company forward – and which areas don’t. Determine a skills matrix for the plan of execution. Review your existing workforce against that skills matrix, and shift resource appropriately.

Swap full time to part time. Cutting staff hours is never nice. But if it means you can keep them on, keep the business afloat, and build their hours back up later down the line, it’s a lesser evil than outright redundancies. 

Help staff line up new roles. If you’re VC backed, you’re part of a portfolio who may still be hiring for certain roles. You can also reach out to your network. Klarna advertised their laid-off workers on LinkedIn – with mixed reception.

If you absolutely have to let them go:

Admit (company) defeat. Letting people go feels bad, and it’s tempting to scapegoat their performance to relieve the guilt. Be honest about your motivations. And always say thank you for their service.

No hiding behind screens. Depending on your size, it’s not always possible to sit down with every employee. But that doesn’t mean every conversation shouldn’t be personal. Use local managers (not HR) or one-on-one calls where possible to break the news. Be visible and available after the announcement. Group goodbyes are bad form. 

Show emotion. Another temptation for business leaders is to resort to cold corporate comms. It doesn’t help staff and it won’t make you feel better. 

Prepare people. Cameo employees heard about redundancies on the grapevine before they were officially told. That’s a morale-devastator right there, both for leavers and remainers. Keep your restructuring plan very secret until it’s ready, and then release it with as much notice as humanly possible. And prepare and support your remaining staff for their increased workloads.

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