RIFs are hard. Unfortunately, sometimes they’re necessary. This is the right way to do them.
In this three part series, Renegade Partners' Chief People Officer Susan Alban and Cameo's former Chief People Officer Melanie Steinbach explore how startups can navigate through the supercritical, during Supercritical times - from the changing expectations around internal employee communications, to how to compassionately navigate layoffs, to exploring innovations in employee compensation. In part two of the series, they cover overarching guidelines to keep in mind when planning a RIF, based on how they guide organizations to do this work with compassion, deftness, and efficiency.
Recession may be coming. Inflation is high. Capital appears to be more scarce, or at least more discerning.
What that means is that companies face greater uncertainty with their business prospects (ie, revenue/profit), and their funding prospects (ie, their ability to raise their next round of financing). So they are trying to survive this storm.
As such, they are focused on conserving cash. And for most software startups, approximately 80%+ of their net burn is on salaries. Which means that many companies have already done a large-scale reduction in force (“RIF”), or are considering doing so soon.
But given that the US has been in a bull market for over a decade, particularly in tech, many experienced leaders, even second and third time founders, may not have been through a RIF before.
We have, both as an operator and as a venture capital partner advising her portfolio companies. This article is to help organizations do this work with compassion, deftness, and efficiency, such that four critical parties have the best outcome possible given the circumstances: the departing employees, the existing employees, the company, and investors.
Upfront, we want to share a few overarching guidelines to keep in mind:
Cutting once more deeply is better for the org than cutting a couple times much less deeply because of the morale inside the company.
Clarity and consistency is kindness. Get the details right and be as clear as possible about the rationale for the RIF and its implications.
Humanity matters. Respect how hard this situation likely is for both departing and remaining employees. Give people the space to grieve this change.
Crafting the plan
Strategic planning: before doing anything else, start with your organization’s goals for the next 18-24 months. What revenue do you need to achieve? What products and services are you going to launch or expand to achieve those goals? What operating efficiencies do you need to achieve? What do you NOT need to do?
Financial planning: Now understand your financial goals. How much cash do you have, what is your burn, and how long do you need that cash to last? Get to a clear conclusion on how much cash you need to take out of your burn. One head of people we know well did an excellent job creating “good”, “better”, and “best” options for severance and benefits options, and the board was able to help select the right option given the company’s budget.
The hardest part: who
Now that you have reaffirmed what your organization needs to achieve, and critically what your organization does not need to achieve, you can start the painful part of considering who will need to leave.
Low performers: Review your team and immediately identify who is a low performer because they are either not achieving their goals, or are not culturally aligned. How many people and what is their total spend? (Don’t forget about savings on benefits and travel).
No-longer-critical roles: Now review each and every corner of your organization and ask the question: is this team, in its current size and structure, critical for achieving the organization’s goals? You can bucket teams and individuals into: Highly-critical in achieving the organizations’ goals; nice-to-have; no-longer-critical.
If you eliminate the no-longer-critical seats, have you achieved your goal? If so, you can move onto the next step. If not, reconsider which “nice-to-have” functions or roles will maximize your probability of achieving your enterprise goals. This is an iterative process.
The plan.
Now you need to organize this work into a cohesive plan. The components that will serve you and your entire organization are:
Timeline-at-a-glance: this ensures that the HR and exec team understand various deadlines, how the work will unfold and who is doing what.
Run of show for the day of: similar to the broader timeline, you will want a timeline for the day of the RIF, which will include schedule and timing of individual meetings, team emails, any public-facing blog posts, all-hands meeting, IT/physical access, etc.
Messaging
To ensure clearness and consistency, you will need to document clear and consistent language for talking to all stakeholders.
Internally, you will have a messaging doc that specifies the rationale for the RIF; an explanation of which teams are affected and why; what you’re providing to stayers and leavers; and how reporting relationships change. This messaging will be used for all-hands meetings, email communications, manager scripts; and employee facing FAQ documents.
Externally, you will want to use your messaging doc to craft any proactive messaging from the CEO and any other key execs on LinkedIn on the company blog and other channels. You will also need to communicate with any customers whose internal point of contact is leaving the company. You may also want to have reactive messaging in the case of press inquiries. Work with your PR team or firm on this.
Now What?
Now you need to focus on the team that remains, always remembering to focus on clarity and consistency. Share the high-level goals of the organization and also when those might be revised or revisited. Share why the teams that remain are critical for achieving the company’s objectives. [Placeholder to tee up the comms article]
Train your managers explicitly on how to show up for their employees – both in reinforcing the company’s goals and in giving employees space to grieve the RIF they just experienced. New managers, in particular, are at risk of showing up to their next 1:1 or team meeting with a business-as-usual approach, which can be destructive and dehumanizing. Instead, train them to simply ask their teammates, “how are you doing?”; to give employees space to digest the change to the organization, to answer questions, and also to move forward together to ensure the organization’s survival.
About Susan Alban
Susan is the Chief People Officer and an Operating Partner at Renegade Partners, where she supports the portfolio across all areas of Human Resources operational support. Susan brings deep expertise in operations and product, especially around launches, as well as a particular passion for learning about new future-of-work, people ops, and marketplace businesses
About Melanie Steinbach
Melanie was most recently the Chief People Officer at Cameo and previously worked with and for Fortune 100 and privately held businesses. She is passionate about integrating the work of the People function with the strategic growth initiatives of the organization. Her expertise is in growth and transformation- of organizations, functions, and individuals.