Uncertain economic The 2022 landscape has left businesses and their founders between a rock and a hard place.
Many CEOs cannot live in the status quo they enjoyed as part of Rossi 2021. At the same time, they’re also struggling to raise fresh capital — and navigate the traditional complexities of lower rounds that can raise money and extend runways.
The sad reality is that many companies have to cut staff to create more runway. This reduction in force (or RIF) is a more permanent version of a layoff that cannot be addressed by budget changes that require temporary changes in employee numbers.
A number of QED’s portfolio companies had to execute RIFs. Many who haven’t done so yet, especially those who forego transaction costs, are deliberately discussing both research and development plans and pet projects.
As experienced ex-operators, we have experienced these dynamics before. Honestly, we’re in a position to help our founders navigate these choppy waters because we’ve spent a lot of time in the past.
Our best practice for CEOs is to cut deep, confident that there won’t be a second round in the next few months.
Earlier this summer, we began sharing a five-page document with the CEOs of some of our portfolio companies that outlines our guidance based on our personal experience and observations. The document was not intended to stand alone – rather it was a foundation to build upon in collaboration with investors, board members and senior management teams. We’ve had lengthy conversations with most of our companies about why, when and how to downsize.
We divide the process into three parts – planning, execution and monitoring.
In some parts, the guidelines appear almost pure — references to legal counsel, rules specific to local jurisdictions, blocking access to email and Slack channels. While the inescapable fact is that RIFs need to be conducted in an organized fashion based on strong business rationale, it is always critical to deliver the message with compassion and respect.
Not all companies that have implemented a RIF have done so without error – even when actual layoffs occur as planned, avoidable mistakes can have a lasting impact on the employees who remain.
Make a plan
A part of the RIF plan cannot be overlooked.
It begins with assembling the team that will lead the RIF and extends through risk assessment, scope, budget, schedule, and communication.
In a small company, that team may only include senior management. In a large organization, you may need representatives from different geographies, departments, and levels. We are working with our portfolio companies to be clear about purpose, objectives and narrative.
- What Causes a RIF?
- Could it have been avoided? What other options are there or were there? What other actions are or can be added? If leadership goes wrong, take responsibility for it.