Get Smart about Business Spending
Confessions of a man who does the layoffs
Editor's note: This is part of a series of stories about the recession's effect on the tech industry.
Over the last few months, there have been countless stories of cutbacks at companies large and small. Real people are losing jobs. For some, that means losing their homes or being forced to change careers. In this series, CNET News is telling the stories of many of the people on the receiving end of the hits recently sustained by the tech industry.
But there is another side to layoffs that doesn't get told very often. That's the story of the people who do the laying off, those who make the decisions about who stays and who goes. Do they deserve our sympathy or our derision?
In most cases, the answer is neither. While there will always be an evil schemer or two out there, most executives who conduct layoffs realize they're cutting into their company's most valuable asset: the employees. Sure, it's a corporate cliche, but most of them do believe it.
We talked to the chief executive of a Web 2.0 company that recently axed a bit less than 10 percent of its workforce and asked him to walk us through the process. Not surprisingly, he did so on condition of anonymity. He's running his third company now. This business is his second Web 2.0 outfit, and is generating revenues from a mix of sources, including subscription fees and advertising. It's an established business, not a brand new Web start-up.
The job cut process, as he described it, was driven by raw numbers and business instinct. No Seven Stages of Grief here, just plain old business sense. Like it or not, this is how it usually works in corporate America:
Q: Why did you do layoffs?
CEO: It's clear that 2009 is going to be a different year than we had anticipated. There's no question that we're in a recession, and we expect that next year could be severe. It's really important for companies to do everything they can to keep costs low, and be able to sustain themselves.
This layoff was based not on an actual decline in revenues, then, but a projection?
CEO: We did see some softness in Q3 and Q4, and projections are that the softness is going to continue. One of the things that makes this very difficult is the uncertainty. It's very hard to plan for next year.
How many people did you lay off, and was it a one-time thing, or should we expect more in 2009?
CEO: We let go less than 10 percent, and that is the most difficult aspect. You don't want the layoff to be too big, and you don't want it to be too small. If it's too big, then you've impacted too many people and damaged your ability to execute. If it's too small, you run the risk of having to do it again, and doing that suggests that it's not going to be a one-time thing, but that it's an ongoing thing. And that creates huge amounts of anxiety. So that is the real risk.
It's hard to say what will happen next year. You take risks either way. We say we're doing this so we never have to do it again.
Could you have foreseen this?
CEO: People were expecting a meltdown on Wall Street. It reminds me of back in the bubble days, when people were expecting the bubble to burst. But until it burst, it wasn't rational to behave as if it were going to. Alan Greenspan talked about irrational exuberance in 1996, and it wasn't until 2000 that the exuberance really burst, so it's a very hard thing. In retrospect, sure, there are things we should have done. And it is possible that in six months from now, we'll be saying that in retrospect we didn't know it was going to get this bad. You may see another wave in six months. And it's possible that we all make it through, that the economy picks up.
When did you have that "I'm going to throw up" moment and realize that you were going to have to let people go?
CEO: I don't know if it was like that. It's hard to say exactly when we made the decision. It came to a process of forecasting our business and determining what an acceptable expense ratio was for the business going forward. When we reforecast our business for the second half of the year and evaluated the risk, we realized that our cost basis was just too high.
So when you realize that you have to trim your staff, who gets involved?
CEO: It starts with the heads of our business units, the people who have (profit and loss accounting) responsibility, and the people who are responsible for your revenue lines as well as the bottom line of the business. You first have to have a really strong gut check as to where you feel the business is going to go. You certainly would rather figure out ways of generating more revenue, and the first conversation wasn't about how to we cut costs. We asked, "How can we respond to the changing market conditions? Let's not just think of this as the market getting smaller, but the market is changing, and we ought to adjust our strategy to match. There may be positive ways to do that." And eventually you have to talk to the board.
You don't start with the board?
CEO: There's been a lot of discussion about this. For example, Sequoia brought in their CEOs and told them: This is the way it's got to be. But any CEO who needs to wait for their board to tell them what to do in terms of their expense structure is not doing the right job. It's the management team that ultimately has to make the call. Boards can give advice and ultimately judge the effectiveness of the CEO, but this is something the management team has to own.
I would never want to be a Sequoia portfolio company. Those guys are so heavy-handed in the way they treat their companies. They see the CEOs as interchangeable. I think a lot of people did layoffs because of the slideshow.
How long does it take to put a layoff together?
CEO: For us it was a matter of weeks. We did want to have a structured conversation with the board about what we were proposing. It's very important to have a back and forth, get their advice and their opinions. Also, we wanted to invest enough time in this to make sure we were making the right moves, that it was the right degree, and that we were structuring the company appropriately, and weren't just thinking of this in a one-dimensional way, which is "how do we cut people?"
It was, instead, "how do we structure the company to adapt to the changing conditions?" And that may include other organizational and strategic changes beyond just cutting people. And that's very important. We also wanted to look closely at other ways to cut expenses and generate revenue.
Was there anyone who, at the end of the planning process, changed status, from staying to going, or the reverse?
CEO: Yes. You're trying to figure out the best mix to make the company successful going forward, and that's an iterative process. And in some cases, we wanted to make sure that there weren't opportunities for people in other parts of the company. We took into consideration not the performance of people, but their skill sets and how they could contribute going forward.
How did you tell people?
CEO: We spent a lot of time thinking through the process. The management team went offsite several times to discuss it. We talked through the logistics on how the day would work, and we iterated on it. We really thought through how this would happen. The details of it really do matter.
We decided the best way to do it was to talk to the people individually first. We tried to figure out how we could get the message to people one-on-one, in person, explaining it to them so they knew first, rather than doing a whole announcement and then tapping people on the shoulder. We told people one by one, by their direct managers, and then we had exit interviews, and then we told the rest of the company what was going on. To the extent we had managers who would be eliminated, we told them beforehand.
Did anyone, on the way out, do any bridge burning?
CEO: No one. It was moving, actually. And I haven't seen many stories about people being nasty or bitter. I think people have been pretty mature about this.
What did you do afterward? Did you go out drinking with everyone who was left behind and toast the departed?
CEO: We did. We set a time for everyone to get together and say proper goodbyes. I think it's a real mistake to treat people you've let go as if they're not people or not part of the family anymore or it's too awkward to look them in the face. That's not respecting them the way they deserve.
What's it like to go home after a day like that, to go home to your family and your kids and realize that other people are going home now without jobs, and will be worrying about Christmas and paying for schools?
CEO: It's tough. But once you've made the decision, if you've put enough thought and work and diligence into the decision, then you can be at peace with it. If you did it on a whim or because a board member told you to or because it seemed fashionable, then I assume you would feel more uncomfortable. If you've really done your job, then you can be at peace.
The best thing you can say is that you have thought through what you were doing long enough to know that it was the right thing. My obligation is to the company, and I've got to think about how I can create something sustainable for everybody, and worry about the jobs we still have here as well the jobs we have to cut.
And the next day? What's it like for you?
CEO: For me, it was checking in with people. The key thing is to focus on the company that you have after the layoff. It creates the ability for you to set a new tone. If there was any complacency in the company, this is an opportunity to make sure that doesn't exist anymore. It's really about moving forward, and having people realize that this company is moving forward.
Have you been in touch with people who are no longer with you to help them out in any way? How's it going?
CEO: Yes. It's a tough market. But we do try to help everyone who's laid off. If we can help them get a job or make introductions, we have been doing that. We're tracking everybody and how they're ending up. There's only so much we can do, but we do think it's important.
Has anybody landed a new gig yet?
CEO: Yes.
What advice would you give to people who are doing this for the first time?
CEO: To be as honest as you can about the process.
But this is not a process that lends itself to being open. If I'm at a company and I know times are tough, and you're the CEO and you know a month from now you're going to do layoffs, do you let me know that a month from now I might not have a job?
CEO: That's the hardest part. Which is why, once you've come to the determination that you're going to cut costs or do layoffs, it's best to move as quickly as you can. Then you're not in the awkward space where you have to be circumspect with your team.
Do you let them know you're making those plans?
CEO: No. I think you can acknowledge the circumstances of the company. You can talk about the forecasts looking dim. But you have to balance being candid with sowing widespread anxiety around the company.
If somebody comes to you, and asks you directly: "Am I going to get laid off?", what do you tell them?
CEO: If the answer is, "We don't know," that's the answer I would give them. But I don't think it's good to suggest something will happen that won't. Usually the answer is, "We are looking seriously at how to lower costs." The truth is that very rarely does this happen.
I'm surprised. It's like people are afraid to ask because they are afraid of the answer.
CEO: That dynamic came into play the day of. People were, at some level, expecting it. And therefore when the day finally came, people looked at is an opportunity to move on.
Next in the series: A bustling green-tech industry readjusts its expectations
Rafe Needleman writes about start-ups, new technologies, and Web 2.0 products, as editor of CNET's Webware. E-mail Rafe. 
Oh. You mean like the CEO's see the rest of us? Funny...when it happens to the people who make the place run, it's Business. When it happens to the CEO's, it's insulting. How interesting....
I put my faith in God guiding me in my decisions that I make in tough economic times. Ultimately over the years, the people I have let go for whatever reason, have gone on to lead great lives so it's just a chapter in those peoples' lives. In todays' climate it is especially hard because there are few jobs and people are so over-stretched.
It's very sad all around. I don't believe for one minute it would have been this bad in such a short space of time if it wasn't for the financial CEO's playing with people's lives - ultimately. Shame on them but there's little they can do now to fix it but give up their millions to help the needy.
So he's failed 3 other times. What's the common denominator in all these companies?
The problem seems to be nobody is happy to be content, it's a "we must make a profit, we must grow" mentality. Companies use to be content to stay the size they were, everyone made a decent living, no layoffs, people worked the same job 20+ years. That isn't the case anymore, people like this schmuck are too worried about making some VC even more money, when they are the ones that ultimately don't need it.
I completely agree with you. Companies that go public just seem like money hungry greedy entities. Their focus seems to shift from pleasing their customers to pleasing their investors.
A company that is laying off people is shrinking, not growing.
In a recession or a depression, companies that try to stay the same tend to go out of business. If a company is still spending the same amount of money, but it is taking in less money, then it fails. It's pretty simple, really.
Please show me a company that isn't trying to maximize profits and I promise you will not find any investors nor will the company be much more than a lifestyle business. Nothing wrong with a lifestyle business but they don't employee many people and they don't contribute a lot to the tax base.
It is true that public companies do have the pressure of quarterly reporting but any decent private company does something similar anyway and presents to their board.
(..."The management team went offsite several times to discuss it."...)
while the rest of the company is in such 'dire straits' that they feel they must layoff the very people who make the revenue for the company.
Two things that are always interesting to me are that:
1. You don't (hardly) ever see managers and especially upper executives getting layoffs or 'falling on their sword' for the company.
2. You don't ever see them cutting from the top--only the bottom (ostensibly because the people at the top are somehow worth more because of their "position")
Personally, I call this "knee-jerk management".
But what it really is, is NON management; instead of figuring out how to MANAGE this "crisis", we'll just cut heads because we know from experience that this works to shore up our bottom line and it takes no real effort.
Funny, but I thought real MANAGEMENT is what managers (and upper executives) were being paid for...
I guess not.
In the end it always comes down to this choice for them:
hmmmm, do I do the right thing for the company's health and cut my (and my upper management pals) benefits, perks, salaries, bonuses and expenses or even cut my own job since it is not really critical in the company's health or success, or do I lay off hundreds of "those people" because it would create immediate financial relief to the company...hmmm
And then to add insult to injury they always like to cry publicly about "how much this hurts them..."
Yeah, right. Go sell that to your mother.
I'm atheist, and while not litigious, if saw that you that you fired me on the basis that I wasn't Christian, I would sue the company immediately.
If you are sure this is the correct methodology, why don't you share it with your employees, see what the reaction is.
"I don't know if it was like that. It's hard to say exactly when we made the decision. It came to a process of forecasting our business and determining what an acceptable expense ratio was for the business going forward. When we reforecast our business for the second half of the year and evaluated the risk, we realized that our cost basis was just too high."
Unbelievable. Not to mention I didn't hear about any upper executives losing their jobs, and the off site meetings? How much did those cost? I bet if the let go one or two corporate executives, they could have avoided laying off over half those people. Also, notice that this was all done preemptively, the company isn't even in trouble yet.
Thanks for answering those questions like a corporate robot mr unknown CEO. What an "insight," oh way, that's how I always imagined you all to be, profit mad money machines who will fire everyone except for the people that cause the problems, sometimes yourselves.
Here's the reality folks: 1, you don't want to cut heads unless you have to. At a bare minimum it costs a tremendous amount of money to recruit, hire, and train people so removing talent will cost a lot of money down the road. 2, However, if you don't do what you need to do when you need to do it the entire business suffers or even goes away. That would be mismanagement and would cost not only all of the employees but also all of the investors. 2 is worse than 1.
While it is easy to say that management overhired, should have seen the economy coming, etc., another reality is that it is impossible to hire permenently. Companies aren't static, there is no way to tread water and your original org requirements change.
Your employees are real people with real lives and any decent CEO's keeps that front and center. You hope the changes you make are the right thing to do with for the company and make changes with as much empathy as possible.
After all the work we put in, the criteria for layoffs was about one thing and one thing only. Money, who ever made the most got the axe. We laid off a guy who put in 80 hours a week, because he made more than the 9 to 5'er.
I have zero faith in Coperate America and those in charge. Coperate America is about one thing and one thing only, GREED.
I see you still don't get it do you. Stop catering to the investors, don't take your direction from them. They don't NEED more money, they're doing just fine. The guy you just laid off, NEEDS the job.
Have you and your management ever taken a pay cut prior to layoffs? Start with the people at the top who aren't living paycheck to paycheck.
These idiot CEOs at the banks - its their fault that their banks are failing. They did everything they could to put as much profits into their wallets but NOTHING to help employees. Giving them a job with orders to carry out such as writing mortgages to people for McMansions that would never, ever been able to even DREAM of owning such a home - thats not doing good by your employee. Then they fire you because you followed orders and executed THEIR ideas? Screw that.
What about OUTSOURCING? I would say that outsourcing is 50% of the cause of this economic collapse. Again, these idiot CEOs at companies like Bank of America and American Express would sooner lay of highly skilled US employees and LIE to you that they're "saving money" by hiring people in India and China and Estonia and Vietnam, etc for 1/4 of the pay AND getting tax breaks on it too! I refuse to entertain anyone that whines to me that these companies need to make a profit. That is NOT the way to do it.
Now look at the USA. Tons of programming jobs, manufacturing jobs, factory jobs, financial jobs, customer service jobs and so on are GONE. And gone with those jobs are the TAX BASE that this nation once had. Gone are the local and State tax base as well. Also vanished are the economic stimulus that, once-paid workers used to be able to provide.
Congratulations you buffoons. You have participated in destroying America. I am positive that you do not give a damn either - so long as your stock options are still worth something. And you'd make sure they were, if you though they'd be worthless. I am sure of it.
And, this ineligible new President, Obama, the fraud of frauds, that fleeced the American people into voting him into office while he cant even prove he is a US citizen -- he wont fix one damn thing. He's so into himself that they'll have to build another White House just to put his head in.
So, kudos to all you idiots who do the wrong thing - OVER AND OVER AND OVER AND OVER again.
Next up: the idiot CEOs of the auto industry as they whine and ***** and moan about how they wasted time and money building CRAP SUV gas guzzlers for idiots who cant seem to leave their home without filling their cars with 150 cubic feet of CRAP from their homes. We will bail these idiots out and then they'll expect that we also buy their crappy cars too? Ha.
And after that: The jackasses from the airline industry who have been far too quiet, watching from the sidelines.
It doesnt take an EINSTEIN to figure out what is wrong - get rid of the top 20% of the org charts across the board and start over. Anything is better then the crap we have leading this nation's businesses and the same goes for our government. Ax the entire Congress and especially that do-nothing Pelosi whacko and start over. Surely there are still some people who would do those jobs for the sake of the job and the nation and the business AND NOT for themselves.
Guess what? when you lose that much money on a category you don't want to invest a lot in it. Unfortunately because the build time for new models is approaching 5 years it isn't that easy to just whip out a new car when the price of oil goes up, not to mention it costs over $1B to bring a new car to market.
Consequently US mfg, who don't have a small car market, were left holding the bag.
CEO: We did. We set a time for everyone to get together and say proper goodbyes. I think it's a real mistake to treat people you've let go as if they're not people or not part of the family anymore or it's too awkward to look them in the face. That's not respecting them the way they deserve. "
This is soooooo TRUE. When I used to work for ACCPAC (for 5 years), just after 9/11, they laid off a bunch of us and we were treated like as if we're not people. Despite our loyalty and dedication, we were treated like outsiders. It was a total disrespect. I've learned my lesson. Now, where I work, I love it cause we're like family and we are treated like people and not just peons. When Executives asked me which accounting software solution is better to use, I steered them AWAY from ACCPAC and go with Microsoft instead as it meets all our criterias for Business and IT infrastructure.
The fact is that most CEOs seem to live in a dream world where they can justify multimillion dollar salaries while laying off hundreds or even thousands of people making far less. Look at Citigroup. Is their CEO going to forgo a bonus this year? Next year? Of course not.
What is it that makes them so valuable in their minds, and how how we allowed ourselves to accept their wildly inflated self-valuations? Perhaps any company considering layoffs should also consider DEEP pay cuts for all executives involved? Maybe if the CEOs didn't have their multimillion dollar compensation packages (including the free use of corporate aircraft, housing allowances, legal fee allowances, country club memberships, company cars, free use of corporate apartments, etc, etc, etc), they would be a little more hesitant to "swing the axe".
Then again, maybe not.
Working for this company was pure heaven. Yes, the work was massive, but they treated you right. They paid their employees right. And for this care for their employees, the company was extremely profitable. And our "stock options" were nice as well. We worked hard to make that stock be profitable.
In early 2001, we were told that we were being approached by "the perfect-storm" of the dot-com/telecommunications world. The little guys would get wiped out, the big guys would be clobbered as well. The SVP who gave an assembled group of us the message said that WE ALL SHOULD PREPARE RESUMES AND GET READY TO MOVE. He told us that they layoff would be in 3 months. Wow. Three months notice. I've been through many economic downturns (aka "storms") before, so I took his word seriously and started looking. Got a few bites, and had a job lined up already when the layoff notices came out. The company let those of us without someplace to go use their facilities after the layoff to find new jobs, They also gave all those laid off six-months' severence. The CEO also announced that he would be paid a $1/year salary for the remaining year (or two) (because of SEC requirements, he would be having to sell his stock options anyway and the income from those would be massive enough to pay a nice living, so it wasn't as if he would be really hurting).
I'd gladly work for them again and go through a layoff with them again. I have great respect for the CEO and the SVPs and management who handled this corporate crisis in such an above-board manner.
Conversely, I've also gone through lay-offs in which 1500 of us were let go by being told that very same day that we were gone... and we were marched to the doors. Now *That* was a crisis.
I've had friends working with a different very large software company--in which they were merged with a bigger software company... and then about 10,000 folks were "let go". However, the CEO continued to make a very high 8-digit salary to go along with massive stock options and a bonus to match. That fellow could have taken a $10,000,000 to $30,000,000 cut in pay and probably wouldn't have noticed the glitch in his income while saving the contributions and work and potential of all those who got laid off.
And then, you see the CEOs of the big-three automakers whining in congress for *help*. Yeah, right. Where's the help for the employees who get canned? Flying in private jets to the meeting was a stupid PR act. They could have at least car-pooled in one of their SUVs.
Oh, yeah, during one of the long stints between jobs, I decided to "change" careers in order to keep food on the table and a roof over our heads... I sold cars at a Ford dealership. Do you know how hard it is to sell Excursions or Expeditions, or Yukons, or Suburbans when gas prices are over $3-4 and interest rates are ridiculous (IF you can even get a loan)? Similarly, my son was working at a Honda dealership across the country. He said they couldn't keep the hybrids and electric vehicles on the lots--they were reserved even before they got there.
I'm thinking that the car makers in this country are in cahoots with the oil companies (uh, didn't the oil companies post their largest profits EVER just a few months ago?) and the car companies are still wanting to continue to build the gas-guzzlers? So... the oil companies now drop the price of oil back to what it was in 1990. Just so folks will be lulled into buying more gas-guzzlers?
Some of us are still awake. When I get a job again (and get some income coming in) and when my current cars decide to give up the ghost (I usually drive 'em until the wheels fall off), I'm definitely getting a PHEV that uses biofuel for the fuel-requirement (and a solar panel to provide the Plug-in part).
We need everyone in this country (and the world) to start making decisions for themselves... forget big business. Forget government. They aren't going to *help* you. You MUST start learning self-sufficiency. You can make your own alternate energy sources for your home/business. You can create your own small incomes from home-based businesses. Get those income streams and savings now if you can before you find yourself out of work and desparate!
Sorry... long rant. But my *opinion*.
Conversely, all you owe your employer is your best effort for the period you expect to be paid. If you get a better offer, it's up to you to decide if you want it or not.
Companies exist for the purpose of making money.
Investors invest to get a return, not to feed your kids.
CEOs hire you to fulfill business goals.
And You work to get paid, not to adopt a new mommie and daddy.
Why do you all seem to think they must sacrifice their bread to keep you fed?
And why this sudden sense of entitlement? Maybe y'all should go join the auto union. We work in tech. You take the risk, and you may or may not get the reward. Heck, I've been pink-slipped three times in 10 years. Best vacations I ever had. Why? I didn't expect my company to take care of me. I planned to take care of myself.
I don't think this is sudden and in most cases, I don't think it is about entitlement.
It is about injecting a bit of humanity into the employment process and being transparent in your motives and intentions with your workforce. I never cease to be amazed at how many companies expect loyalty to be a one way street.
Having worked in Senior Management at a company that unexpectedly lost one of it's largest customers and had to reduce our workforce accordingly, I agree with the CEO in the article's approach. One thing he did not mention is how Senior Management in his team contributed to cost savings. In my situation, each manager took a paycut which resulted in 5 less people being fired and all terminated employees were given first chance at any positions that came open. For my team, we let 3 people go and were able to rehire 2 of them within 6 months.
One final comment, don't equate offsite with a party at an expensive resort. We also did our planning meetings offsite, but they were conducted in a crowded conference room at a nearby budget hotel. The were conducted after hours and the only thing provided was water and soft drinks.
Cut a CEO's pay in half. What has he lost?
Absolutely nothing, he is still rich.
Idiots like you are what is wrong with this country.
- by Jim Satterfield December 3, 2008 6:58 PM PST
- The claims of necessity would be much more convincing if there weren't so many examples of companies firing people while they were profitable but just not profitable enough to keep Wall Street analysts happy.
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- by twitter_1963 December 7, 2008 1:44 PM PST
- You don't get out enough. You don't cry when good CEO's are replaced in good times... there are many..
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