welcome to the a 6nc podcast today's topic is managing uncertainty layoffs and talent management startups in many ways by definition are about managing disruption and uncertainty with things changing with technologies markets customers business and people so what happens when those business changes require changes in the workforce in this episode we focus on the topics of the frequency and magnitude and reasons for layoffs to communicating about them with employees joining us for the conversation or a 6nz partner Shannan Schultz who heads up our people practices team and that basically encompasses everything from HR to performance management
to things like immigration and her team also manages her technical talent network Shannon also has a lot of experience as a former HR executive because she used to work at UPS where and then we also have Alex rampoo who's one of our newer general partners and most recently was the co-founder and CEO of trial pay where they went through quite a few changes as well so that's the introductions let's just get started one of the things that's commonly happening right now is reductions in the workforce or rifts layoffs and they happen for many many different
reasons yet what reasons are those so I mean I think you know the workforce your employee workforce is like the most expensive expense that any technology company has it's all about the people so if a company gets to the point where they need to reduce their cost and reduce their burn the biggest thing you can do is is reduce the number of heads working for the company so that's one reason that's one reason you can also you know we've had companies and we've seen companies in the industry that have you know hired with the goal
of building a feature or a product and then pivoted so they have this great engineering team or sales team and they're not actually going to build the product and then they're not gonna sell it so you need to actually you know reduce that team because they have expertise in one area but now they've you need to hire a different skill set you could have you know a product that is late and shipped in shipping so your business roles might not be in you know you might have hired aggressively and you're just not ready to utilize
those skills yet sometimes I mean there are almost three different forms of people in the company there's kind of fat muscle and bone of the body and sometimes you do get to a stage as company where you might have people that aren't carrying their weight they're not actually doing what you would hope for them to do but performance reviews have not ever happened I wouldn't even call it a riff but we did a layoff of some people on our team that we just didn't think we're performing and we should have done that a long long
time ago this is actually when the results were great but we never got around to actually enacting performance reviews and I would say from the HR standpoint I hope that companies don't do it that way especially especially when you actually do have a riff for not performance of the individuals but really performance of the company now that haven't been said when you're doing something like a riff for the performance of the company in many cases of course you do take into account the performance of the individuals like you're not if there's somebody that keeps the
lights on and and if that person left the entire company would fall apart that's the last person to go down with the ship well that's technically defined what is a riff I know it stands for a reduction in work force there's many times types of you know changing the company's employee base but how do you define that specifically for people who aren't in HR and who haven't run a company yes I think you know a riff or a layoff or drop eliminations there's a whole bunch of different names they're all the same thing which is
you're reducing your headcount it can be anywhere from you know I would say from five on a group if a group of five people are more I think a lot of times if you're doing less than that a lot of times you are just like maybe course-correcting your performance managing you're doing something not necessarily classified as a riff and you don't necessarily need to get in front of the company and say we're doing a reduction I think once you see a larger number people are going to take note and see that a lot of people
are or more than a couple people were impacted on the same day and if you're not transparent about what went down people will start to assume something's going on with the company and it might not be the right messaging that you want people to think about so I mean should a as a CEO supposed to communicate every time people have to leave the company well we did because what we didn't want to have is I remember somebody in my company was from Argentina and he said he didn't want to be like that desaparecidos of like
Argentina where did that mean basically people would disappear in the middle of the night this was during like the Civil War and then you'd never hear from them just like where do they go sometimes in companies and everyone looks around like confused like and you actually the store you start traveling like what there's still some of the big companies that are doing it we know of one that just last week did it that way well unfortunately one time we had somebody leave the company who had committed a serious felony literally to the point where the
sheriff came to our office arrested the person took out all of his things like there's still a box in the sheriff's office somewhere that has like lots and lots of stuff like can we do a big announcement to the company and explain like the reasons for the arete like no that was that was the most awkward one hopefully that one never happened again but generally speaking we would always send out a note and we would craft that with the person that was was being like oh it's a little bit different when you're doing a group
of people I wouldn't counter your point on it's not a good idea to go take a batch of five people and eliminate them for performance reasons but also what we didn't want to have happen is that if we stager eventually as we got more mature as an organization we would have performance reviews at a regular cadence but if we said okay you know this week this person's work wasn't up to snuff and that was like week number 12 in a row and in the next week the same thing happened then it did look like this
bizarre of staggered uncoordinated process and it was like doesn't this company know what they're doing like if there were five people that aren't carrying their weight like it's probably better and easier to kind of message that in one fell swoop as opposed to the you know deaths iPod I see those brightly into the night but sure Shannon why did you say that was a bad practice in the first place performance management driven riffs yeah well one I think it it shows from a cultural standpoint it says that you don't necessarily care enough about your employees
to give them real-time feedback second it's more plays into all of a sudden people are being let go you don't openly communicate to a company and let people like naturally absorb the fact that we're going to do a reduction a reduction is done quickly it's done efficiently and it is like you're notified and walked out at the door so that means that the way that you're dealing with people who aren't performing is you're telling them the day of that you're not performing and we're letting you go which then causes panic in the organization people start
to question can I be let go am i not performing to the expectations of my managers it's it's a cultural thing that you try and stay away from performance related riffs so just some background on trial pay you know we were doing great until we weren't and then eventually we turned it around and the company was successful but for us what happened was there were a bunch of companies if everybody remembers social gaming trial pay was one of the biggest companies that was handling all monetization for social games one of our biggest companies was a
company one of our biggest clients was a company called play fish play fish gets bought by EA social gaming runs into problems eh shut down play fish multi multi-million dollar revenue stream for them and also for us gets shut down Zynga their own revenue goes down by 70% if you're selling a product and you can control your destiny and sell more stuff then great you could sell more stuff if you are selling something as somebody who's selling something to somebody who's selling something if you're like the second order derivative and like your clients of your
clients start to suffer like there's nothing you can do you can just like hope and pray to the gods of like please let these people sell more things I can't make people play farmville and unfortunately they stop playing farmville so we went through some challenges where just our revenue which tripled in one year went down a little bit then went down a lot and it was very very hard to predict this and there was a big shift at the same time happening to mobile so we were confronted with this problem of we didn't have the
cat we didn't have the revenue that we thought we were going to have that we knew that there was nothing we could do to affect that because we had this second order derivative problem of we were just two steps away from the end consumer you know we did have to do a number of rifts but the problem was I mean obviously it's kind of everybody knows you shouldn't do death by a million rifts you just don't know necessarily how like you don't necessarily know how bad it's going to go and the easiest thing to do
is say you look at your organization and you say okay well we clearly don't need these 20 people or these 10 people right now based on the situation that you see right now and obviously it's going to get better because you wouldn't go start a company if you weren't an optimist if you were just a devout pessimist you would never start a company so it's gonna get better oh wait it hasn't gotten better and then you have to cut again and then you have to cut again and then across that entire time like the biggest
challenge for me was actually not the riffs the biggest challenge was losing people that were very very good because the morale of the company went down so as just so much and the morale the company goes down when you do multiple riffs like it's it's a circular argument here so you know I get people asking what's the right way to do it and to counter not being the pessimist but not being as optimist as a founder CEO is you have to model for your worst-case scenario say numbers don't turn around tomorrow right how deep do
you need to go if everything stays the way it is today or decreases slightly so that you don't have to get in front of your workforce and announce another riff you can't people you're good talent starts to leave when they see a riff another riff and another riff because they want stability and good tell another choice they do anywhere you want that's those are the folks that you don't want to lose and so as hard as it is you have to you can't just decide today and do it on Friday you have to do the
financial modelling you have to think about doomsday and you have to find the happy middle on so you can cut at least to get so you're not doing it in another six months right so you describe it Chenin of the debt by the thousand cuts you don't want to do like a bunch of little riffs you would rather do like a bulk at once can you walk us through the process so what is this like what step one what step two what there's communication there's this modeling like how does this sort of play out step
by step you know we actually do have a you know timeline in a playbook on this but it's you know one it's figuring out do you need to do a reduction does it make sense to reduction are there other things you can do what are some other things you can do you think you know like some of the freebie stuff that goes on in the office I mean are there how significant are your cuts like how significant of a cut do you need to make in your your cash flow or your burn so once you
decide you are going to do a RIF there's internal communication you also have to think about okay if we're how many do we cut and what are the dollar amounts associated so it's actually a really complex process so there's internal communication there's standing in front of the company and talking to your employees there's talking to the employees who are impacted talking to the employees who are staying there's focusing on morale then there's press there's like a whole bunch of different communication plans that need to be figured out then there's you know the legal aspect which
there's tons of legal pieces in a reduction what are some of the high level just you know basic no no that you can never do in a RIF or that you should do in or if legally well one you want to make sure that there's no adverse impact so there's you need to do a lot of reporting around who's being impacted ethnic backgrounds age you want to get signed releases from folks you have to look at affordability for severance and then you have to look at on top of that like if you stay under 50
in California you don't need to have a certain amount of notice if you are reducing more than 50 you have to give 60 days notice or paid out in severance so it's actually a really complex thing in terms of just how to do this and how to do this right what I learned was again like going back to this optimism versus pessimism thing if you're starting a company and you're going and hiring people and you're getting great engineers and salespeople and business development people away from places like Google we're almost in every case they're making
more money the I mean you're getting them for two reasons one you're getting them for mission hopefully and then in which case everything becomes easier around morale and everything else but that's not always the case in many cases you're getting them because they see okay I'm giving up something here but I'm gonna own 1% of the company or I'm gonna own point 5% of the company and you know what if you one point five percent of Google that would be worth what you know billions of dollars so like two point five billion by my count
so you're giving somebody a chance to like this is what Silicon Valley is really built on you're taking a loss right now to hopefully you know you roll the dice for something in the future now the problem is that when the company starts to foot fault and this isn't even the Rif thing this is more of like your sales could go down of course it gets worse if you have a mismanaged for if for a series of rifts but even with one roof I mean you have a foot fault and people thought you were going
up into the right in perpetuity now they're like wait a minute like what is this equity actually worth and now I'm getting underpaid it's actually funny when I see a start-up and they come and they say okay here's my op X plan their optics plan is based on they're going to pay people series a or seed salaries in purple and what they don't realize is that people are gonna say after three or four years it's like okay I got this equity and that's great but you know what I need to go buy a house and
that's a lot harder to do especially if you haven't gotten all the quiddity out well to that point really quick because we've moved on to a compensation topic which is you have to be very careful I'm sure you agree with this at seed stage in a round a lot of companies will give the option of do you want more options or more cash and they'll figure out the equation and give somebody more options and keep them at a reduced cash rate once you start approaching your B round or two to three years into it everyone
gets brought up to market so like you only get a discount for a certain amount of time before everyone comes to market because people cannot afford to live on a discounted cash income but in fact the point is I think interesting because it's a connection between what happens to the morale and and how that turns that into a salary conversation what's your view on tying those two is that a mistake - I actually think - Alex's point I think there's a third thing there's the mission there's the equity but I think the third piece and
this is where I do a lot of coaching on the Rif topic people come to work for the founders they come like they truly believe if you can actually do a riff the right way and everyone that you want to keep feels like everyone who was reduced or impacted was treated with respect on the way out the door you can keep your great employees because they came to work for you and if you're treating everyone with respect they'll stay with you and this was you know at ops where we went through I think three reductions
you did yep and it was at the end when we sold to HP everyone that went over in that cell would still to this day probably walk off a cliff for been well that's great because as a CEO founder CEO people believe in your vision and they believe that you know what you're doing you read his book the struggle like he didn't always know what he you know what the right answer was but his employees always felt that he did the thing I say to our founders and CEOs is that every person who's joined this
company joined you they they might be working for someone else but they believe in the company you said you were going to build so you know you guys are both reference communication and believing in the founder is the founder than the right person to get in front of the company and communicate is it or someone else it's the founder it's the CEO the most important thing is you have to you you want to control the communication that's going out to your entire workforce which means one person needs to stand up and communicate to everyone what's
going on that day why it's taking place and that you as a CEO and Founder like it was one of the hardest things decisions you've made what's the right balance I mean are you supposed to be very matter-of-fact and sort of clinical are you supposed to be a little emotional I mean do you feel like do employees feel doubtful if they see the CEO kind of tearing up in the middle should the should they be a little you know very HR like it's not to be mean Chenin but honestly like harsh yeah very like okay
and here's the paperwork and you're done you gotta sign and there's a legal reasons for that so what's the right balance here and I mean I know there's no right answer but what's the best practice you Shannon can probably answer the the HR aspects of that very very well I mean for me it was more of how do we still communicate I mean to your point like people are showing up to work for this mission for the founders for everything else that they really signed up for how do we show that there's still a plan
to win because if you just kind of say like hey we had to do this because we have to cut costs and yep that's what we got to do sorry time to go back to work like you're not going to have a very motivated workforce at that point in time and I'd say that in most cases people understood I mean even the people being let go I remember the first time we did one of these I mean I I literally didn't sleep the night before and because there were some people like there was somebody who
would work for me for a very very long time he was terrific but she didn't really have that much to do anymore just given what what the company was going through and that was a really really tough one but she was she just said you know I totally understand I mean like I know where things are and like you've been great to me and you know thank you Beth made it worse for you in some ways no it made it better because I just felt like I was an evil person and you know here's somebody
that's been tremendously loyal to me like one of the things that we did do is the amount I mean I don't know if maybe Shannon can tell me this is a terrible idea which I had had her advice no but but we we gave more severance for the more time that they had been with the company so for somebody that had been there for seven years we gave them even more severence as opposed to somebody that had been there for one year or two years I mean I think we were so generous with everybody the
thing that a lot of people don't understand about generosity with severance or like they look at what Netflix does or it's like hey we're gonna pay your manager to fire you or something like that and if you have four months of cash left as a company and like you just can't do this you get excoriated by the press by your employees sometimes it's like oh my god I can't believe you gave person X only two months of severance in most of America you don't get two months of severance so first of all this actually is
very generous it isn't generous but like we're gonna pay you for two years to leave kind of Netflix style they're a publicly traded company worth tens of billions of dollars and that's the other thing that I found very very challenging which is like you know the the generosity that I think we were showing people was really really hurting the finances of the company and you know how do you deal with that where it's like okay we want to be generous we want to like reward people like it also like you do want people to just
like more as a practical matter like you have a release and they get the severance if they signed the release you can imagine a private unicorn type company does a layoff and it's like all of these people and gave three months of severance but what if they only have you know a year of cash left anything else who'd be just and there's no company doing three months severance these days standard like I'm this question it depends it is this goes back to it takes a lot of planning to do a reduction and affordability is so
important because if you do a reduction and you're super generous because you want people to feel respected and loved on the way out the door you're giving yourself less runway to actually make it as a company and so as hard as it is like we can see companies doing anywhere from two weeks to you know I would say typical is a month I mean because there most companies aren't doing a reduction because they wake up one morning and say you know what we just have too many people it's usually driven by cash and so it's
it's you can't be super generous are there other things you can do to make it better besides just offering kind words and helping walk out them out with carrying boxes like can you offer them contacts I have so I have the HR side and then I have the talent side so any company who's doing a reduction part of their fa Q's is that it's a an email alias to set up that goes directly to my team anyone who reaches out to my team we get on the phone with them we help them at the resumes
we help them get introductions to companies it's about giving back like you join one of our portfolio companies you gave everything you could and we want to help you and it's that's a huge thing for our CEOs to be able to say there's the day of and then this the day after and as soon as the CEO stands up and start saying you were doing a reduction the coach and I gives us that everyone in that room is gonna hear about two or three more things so you asked should you show emotions like how you
have to be real with your employees like obviously it is a hard thing that you're doing it's a hard decision communicate two or three things about what's gonna go on during the day and by two or three things you mean just because they're not gonna hear I can't like nobody comes into work expecting to hear from their founder CEO that the reductions going on right and so but then you want to bring everyone back together as quickly as possible to go through the go forward plan you know you still have to have a plan to
get people to believe what you're doing so kind of walk us through the mechanics of this I mean just start right for the beginning for you and so you begin with the modeling and the people in the room for that modeling are the CEO the CFO the HR person anybody else it depends I mean it I always say you want to keep the circle of no as tight as you can for as long as you can but obviously a lot of times you need leaders of other groups to weigh in on who's what teams are
we keeping and what teams do we need to let go right so you bring them in okay so that's a step one then you have the communication and you said there's about to a minimum of two weeks required between those typically hopefully and then you have the communication plan and and what actually again just what are the mechanics of it like you call people into the HR person calls me now says the manager the way that we like the playbook that I run with is first thing in the morning which is typically you know Silicon
Valley style 9 or 10 o'clock in the morning you have an all-hands meeting and as a CEO you stand in front of the company and announce like today we are doing a reduction in force and we'll those people who are getting reduced have already heard that nope and everyone and here's why if it's you know the markets changed or we need to reduce costs or we bill something like giving a couple of reasons why we're going through it but very simple mm-hm and then kind of walking through here's what your we're all going to experience
today so either everyone's going to be met with or those impacted are going to have a meeting with their managers so you're actually giving the people a heads up yep I didn't know that that was the other way around early so a lot of times what will happen is people will come to me and say not comfortable standing in front of the company and saying that and I'll say okay but just realize as soon as you have that first conversation with someone that they're being laid off it will spread like wildfire everyone will like start
guessing and you don't get to control the message the very high level like we're doing this today and this is why then you just miss everyone you let everyone go back you no one's gonna do anything during the day you have the conversations you have managers sit down and talk to employees and tell them that they're being impacted does our person have to be staffing Nangal anything like that if you think there's something that can go sideways you can pull HR into it but your managers should be able to handle it okay and then from
there I typically recommend bringing the company back together for like ten minutes at the end of the day notifications and saying you know it's been a hard day we appreciate everything that everyone has done here you know we're sad to see people leave and it's typically around noon and let people go you can either try and bring your workforce who is remaining back for at three o'clock four o'clock or you know in the late afternoon just to do a quick hey this is what we're gonna do the rest of the week or have the next
morning and this is where you have to have tight communication your your PowerPoint your everything's ready to go on here's how we move forward as a company and this goes to Alex's point about sharing with the remaining employees in order to maintain morale that there is a plan to still win and and that our plan is so solid we can share it with you today because the Rif actually helped us get to this plan so if we didn't have a plan we couldn't have done the Rif right so here's our go forward plan yeah we
did it a little bit differently but I haven't had as much experience I will say that you have different currencies as a company and obviously your most valuable currency is kind of the mission and that is what it is like you can't I mean if you change the mission that's often very very challenging it's mission and it's the personalities of kind of everybody involved there's compensation which is equity in cash the value of the US dollar isn't going to change but your equity can change a lot the last is just responsibility and what we did
at the end we did a couple things and this is probably very non-traditional but you know thing number one is actually we split the company in two we had a different project within the company that we just thought was very very high beta and there was a lot of controversy around this I think most people thought that we were idiots for doing this imagine that your financials are not doing well what's the first thing that goes in the chopping block it's the thing that could work in the future but it's not anything about near-term revenue
and yet these are the things that you need to invest in for the future so which way we spun this out into a new effective series a back company and we had 25 people that wanted to like they missed the experience of working at an early stage startup they went off with the little ship I mean it wasn't a riff it was like this was a funded company and again you can't always do this but this was a fully formed product the main company trial pay was a lot more profitable at this point in time
because we had all these expenses taken off our books he didn't get selected for that small boat then you were left in like the the dying Colossus so what we did was we actually gave people a lot more responsibility I mean that that was a hero you're more vested in the future you feel like you have control and ownership yeah and we try to give them more equity as well but the problem is that like if you say okay well this company's gonna be worth e n state of zero and it wasn't but like if
you say that or people believe that and you say hey guess what we're giving you a lot more equity it's very hard to make that valuable for people but like this was something that we did where we had the group of people that really wanted the small stage experience again and they were probably gonna leave us for that reason and we had a really cool product that they were very very excited about trial payment I think the the only currency that we really had left because we couldn't pay people to stay for the very reasons
that we talked about with just optics and whatnot but we could give people a lot more responsibility and I think that really worked I think the end thing just to like doing stuff like that and if you've read Ben's book or if you've read some of Ben's blogs or if you've heard our compensation thing I was laid off in the second layoff oh yeah you guys talked about HR like the if you do it right the loyalty doesn't go away and you can continue like keeping you know people that are important and you know we
I was the second second layoff we did I was reduced and hired back within a year but it was it made sense to your point about the person that was really they kept you up all night so one last question then how do you ensure that you get back the employees that you want back when you can get to a state where you can bring that person back for whatever reason and how do you handle the one the disgruntled employee that is always like saying crap about the company after they leave I mean I know
there's stuff like non-disparagement I think the more focus and the more you pay attention to the the angry employee the more what they have the same matters people leave people get angry changing jobs is what one top three of the most stressful things that you go through in your life what are the other when marriage and debris there's three things s is one of them but it's it's one of those things that so it's super super stressful and then when it's not controlled by you I mean you're there's people who are gonna have anger and
you know my recommendation is usually to let it just let the person simmer out unless there's like legal things you can do if they push it to they push the envelope but the more attention you give it a lot of times the more fuel you put on the fire yeah I would agree I mean it's funny I won't say who but now that you know trial they got acquired by these uh I'll look at somebody's LinkedIn profile and they'll say like they were and this this might have been a disgruntled person they'll say try Allah
and they changed it to now like saying acquired by visa so I mean the best medicine is really just to like really how do you make this company successful again because these feelings are often very transient I mean yes if it gets to the point where you need a restraining order like that's a different problem okay but if it's the normal course of action which is I my view is that it's it's understandable like I view this as a colossal failure by me and if somebody was mad at me it's like yeah they shouldn't be
mad at me and I don't hold that against them now if you're still mad at me like five years later like that that's a little odd you might need to get some therapy but you know I I take it as a good sign that many years later like I see all these LinkedIn profiles get updated where it's like they're they they have some pride around where they were I think it's this is a part of you know I have this conversation there's a whole bunch of different compensation things going on right now there's a whole
bunch of different you know things going on on how people manage their their employee base and I always say to folks it's not always going to be smooth sailing like you will come across your hiccups and the way in which you you handle yourself as a founder and a leader and what you expect of your leadership team how you do that determines how you will actually end as a company I think that applies to life too because it's like how a person behaves in this karma where's a karma but it's also how a person behaves
in their worst moments mm-hm reveal so much about their character and it is this is gonna sound cheesy I get to sound cheesy my heart breaks every time I have to help a CEO founder reduce their company because it is it's not something they ever dreamed they were going to have to do and they hired people and they know people came to work for them and they trusted them being a founder and being a CEO is a tough job it is definitely hard well thank you Shannon and Alex for sharing your experience and that's another
episode of a success a podcast
