It’s hard to write about layoffs. It’s admitting failure on multiple levels: failure to manage people and cash, failure to adapt, and failure to see the future.
It actually happens a lot. Companies that have raised over $500M go through it. Even companies that are profitable have layoffs. And so do companies run by Tony Hsieh.
Still, there’s a stigma to it that makes it uncomfortable to write about. In our case, it was probably not just one failure, but multiple failures. Maybe that’s why we’ve had multiple layoffs? Ugh.
I’m a co-founder of Scripted and took over as CEO last year. The first difficult, lingering decision I had to make was whether to take the team all the way down to the absolute smallest team possible. We had a few names for this. We called it the “skeleton” or “cockroach” team. It would have to be me and Jake, our CTO, another engineer or two, and some customer support.
The implications could be dire. It could stamp out our revenue, it could grind new feature development to a halt, it could kill our drive to keep Scripted alive.
All those things could happen, but none of them could happen too. I was banking on the latter as I brought this up a few times with a couple of people in the months after I took over as CEO. We kept postponing the decision. Like the 14-person layoff a year earlier, it was hard to stomach. It was a leap of faith. You don’t know how bad it’s going to hurt until you land.
In February 2016 we dropped from 33 to 19 employees
The layoffs included the entire sales team, both of our product managers, our freelance operations team, and our office manager. We did this layoff to adapt to our open marketplace and monthly membership revenue model changes. The logic looked like this:
- Ultimately we wanted to get Scripted out of the middle. That meant putting buyer and seller closer together, adding writer profiles, and allowing phone calls and direct job assignments.
- However, we were taking about 60% of the marketplace transactions. We couldn’t keep that high of a take rate and put the two sides together, so we’d have to drop it down, way down, to 10–20%. This would mean cutting our revenue by 80–90%. Ouch.
- In order to cushion that fall, we’d institute the monthly subscriptions. These plans, unlike the others we sold, would not include content. Job orders would be charged separately from the subscription. We kept these fees low, originally as low as $49/mo, and now the lowest is $79/mo.
- These changes allowed the marketplace to do a lot of the work for us, so we could operate with fewer people. It hurt, but we had to do it. We decided then that 19 staff was as low as we could go and made that change in February 2016.
The rest of 2016 was a good, hearty grind. Every month we got better, learned more, further refined and improved our open marketplace. Our CEO resigned at the end of July and we brought on some marketing consultants, Revel One, who helped us not only think about how to lower our acquisition cost in the new model, but also helped us execute. They put the machinery in place that allowed us to keep growing without them.
Growth was steady, our marketing machine was working, but $10,000 per month of new revenue wasn’t enough to offset losses of $200,000 per month. To make matters worse, we began paying a $3M loan back to our bank in August 2016. That principal payment, combined with our net income loss, made it impossible to get to breakeven on our own. It also, frustratingly, made it hard to fundraise. Investors won’t put money in a company knowing that it’s going to pay off debt.
We were looking down the barrel of a couple months of runway. We could force a sale, or we could trim down again, be profitable, and re-negotiate the loan terms with our bank. The right decision was obvious.
In January 2017 we dropped from 15 to 6 employees
A couple of weeks ago we did it. We were 15 employees, operating smoothly, but still burning too much money.
So we went all the way down to the six. Skeleton. Cockroach.
In just a couple more months, though, I’ll have another word to describe us: profitable.
I can’t underscore enough how going through layoffs like this will change you. It has impacted my personal relationships with past employees, even my co-founders. You can’t go through these changes without harboring some amount of frustration, even bitterness, about what might have been. I’m sure the folks we laid off feel the same way.
The irony is that the better you hire, the harder it is to do layoffs. Every single person hits you right in the gut. It feels wrong to do it, even when all your financial models and advisors tell you it’s right.
I try to temper the pain by reminding myself that it’s easy to say what’s right or wrong in hindsight. It’s easy to say things might have been better if I’d spoken up more, worked harder, presented ideas differently, or been directly in charge.
So I tell these stories because it’s cathartic. It’s also my way, perhaps at the cost of making some people uncomfortable, of contributing to the discourse around startup fundraising and management. I think it’s important to drop the facade sometimes and be real about the struggle.
I want to be clear about one thing, though. Time can be spent differently, but if intentions are good, as ours certainly were, then time can’t be wasted. I wrote about how we lost $18M in cash. But we gained a lot in knowledge, and, we all hope, in intrinsic value to the company. We’re certainly a better company today because of the time we spent together working on this problem.
To be profitable, or not to be profitable? Ultimately, this is the question. I know what the answer is now for us.
Once we get there, I can shave again.
3 thoughts on “The story behind our layoffs”
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