With layoffs being more frequent in the tech industry, here's a post demystifying layoffs. This is based on my experience working in various companies and hearing stories from friends and colleagues. This post doesn't talk about any particular company/scenario specifically.
1. The way most layoffs go is like this:
Scenario 1 : Startup with reduction in revenue growth rates needs to cut costs to preserve runway
Scenario 2 : Big company with reduction in revenue growth rates is seeing margin pressure as costs(OPEX + CAPEX) are now a higher percentage of the revenue leading to loss in investor confidence and stock price decline
CEO: “how much do we need to pay off?”
CFO: “we need to cut our burn by 20%. To be safe, we should reduce headcount expenses by 20%. We can do 18% but that’s risky and means we need to save harder on OPEX.”
CEO: “Ok, 20% it is.”
2. CEO tells all C-levels to send him a list with names to layoff that reduce headcount expenses by 20%. Deadline: a week.
C-levels look through their orgs and pass down mandates to VPs to reduce HC expense by X%: so it all adds up to the target 20%.
- Contractors, food expenses, etc are cut first so that layoffs is a measure of last resort.
- Key orgs can see less cuts. Orgs that are part of core revenue generating products, core infrastructure will get less targets as cutting them will disrupt core business. Experimental bets get chopped first. Companies internally close their venture capital and startup arms and consolidate key aspects of the business.
- VPs in different functions get different targets. Recruiters, sales & marketing in b2c companies, QA, TPMs, Solutions engineers, PMs, Engineers - is the order of priority for layoffs. Engineering is touched last as engineers build. A product company doing massive engineering cut is a red flag as the company will be building less in the future.
3. VPs usually involve directors, but NOT below. Senior managers, managers usually not in the loop.
Ok, so now the list needs to be built. Now, at this point there’s usually still a $ target, not a headcount target. So how is this list built?
4. Directors don’t reach out to managers but identify people to fired based on:
- Poor performance reviews recently
- People working on strategic priorities vs ones that dont align
- Platforms easy to hire vs harder to hire
- Highest costs in redundant roles / ones less needed
- People working in cost centers / long-term-bets
5. This is where a good director can do better for the team than random selection. Lot of directors who are checked out and dont have good level of understanding of their orgs current performance standing, will have a spray gun approach. A good director will know nuances of who is well respected, who has more spillover impact, etc.
6. HR will take a look at diversity, maternity, paternity leaves - legal challenges and prune the list accordingly.
7. The selection will really depend on what the directors and VPs prioritise and it *will* feel random. The director has incomplete information, and need to have a list by a deadline.
8. In some scenarios managers/snr managers are asked for the list by the director. Junior manager who may botch the layoff by leaking are skipped. After getting the list the director makes the call on whether to include the name of the manager in the list or not. Same goes with the director where the VP makes the call and goes up recursively to the CEO.
9. This is the overall high level way this process works. Offcourse reality is a lot more messier, there are horse trading games directors and managers have to play to protect their teams. There are several contentious meetings where things can get very heated where some of these decisions are made.
