Short of declaring failure and shutting down your company, laying off employees is the worst thing you may have to do as a startup CEO. I’ve had to lay people off on three separate occasions. It was difficult and emotional—those days were the worst of my career, and probably rank in the top 10 worst days of my life, period. This isn’t firing for cause—employees aren’t being asked to leave because of their own failings. They’re being asked to leave because the company can no longer afford to keep them. It’s not their fault.

It’s a truly awful process. Some CEOs will fall into the trap of thinking that because it’s invariably messy, it doesn’t matter how you do it. I couldn’t disagree more. Layoffs are bad, but how you handle them makes all the difference in the world. Here are a few best and worst practices for orchestrating layoffs.

Best Practices

1. Cut earlier and deeper than you have to. You really, really don’t want to go through this a second time. Assume you have less runway than you anticipate, and cut early. Cut more employees than you think you need to in order to reduce the risk of a second round of layoffs. Things are always worse than they look, even when the situation is bad enough to consider layoffs. Financing will take longer than expected to come through, receivables will dry up, and so on. 

2. Remove poor performers. You have no choice but to remove people if their positions are being cut altogether, regardless of performance. However, you can also take this as an opportunity for some major house cleaning. Just be sure to work with someone (a lawyer) who can help you navigate the legalities—particularly if you’re dealing with employees outside the US. 

3. Plan your talking points in advance of meetings. When I’m planning all-hands meetings, I tend to write bullet-point notes and talk freely instead of scripting my comments—but not for this. A round of layoffs is likely to be one of the most emotional moments of your career, and when you face your employees to deliver the news, you won’t be in your usual headspace. Don’t wing it. Plan everything you’re going to say—both to the individuals being let go and to your team as a whole—in advance. How you handle these meetings will depend on the size of your company and how many layoffs you’re doing. Regardless, you want to communicate respect for and appreciation of your employees throughout the process. 

4. Follow layoffs with an all-hands meeting. Layoffs are emotional for the entire team. Follow up with an all-hands meeting to explain what happened, why you made the choices you did—preferably with metrics to back up your decisions—what’s next for the company, and whether people who weren’t laid off are at risk in the future. (Be honest!) Ideally, the people you’re laying off should be included, too. You want to honor and thank them in as public a forum as possible. For those who remain, it’s important to cultivate security and trust. However you’re communicating with your employees, you’ll need to increase your efforts, and clarity is always better. Let them in on the state of the business, financials, and expectations. You don’t want to skip over the pain that comes with layoffs, but you do need to be prepared to move forward effectively. 

5. Treat employees who were laid off with dignity and honor the work they did. This will come into play when we talk about what not to do, but it’s important to remember that they’re being laid off for no fault of their own. One meaningful thing you can do is help people find their next step. Promoting the profiles of your former employees on job boards, portfolio lists, etc., offering your own connections if it’s relevant, or giving excellent referrals when you can are all great places to start. Severance is also key. Be sure to consult your board and follow your company policies, if you have them, then be as generous as you can afford to be. If you can offer a safety net or bridge, do so. 

These folks will still be alumni of your company, so the way you handle them personally will impact how they talk about the organization, rate you on Glassdoor, and refer to you as a leader. Every step of the process matters—whether it’s how you broke the news, how public things were, how helpful your team was, how much you paid—and will impact your company’s brand as an employer and your own reputation as a CEO. 

Worst Practices 

1. (Per above) Do not assume, because layoffs are awful and messy no matter what, that it doesn’t matter how you do it. It absolutely matters. 

2. Do not treat the people you fire like criminals. Don’t hire security guards or bring boxes into the office before breaking the news. Think very carefully about what systems you need to restrict access to, when, and whether there are any loopholes. Sure, you don’t want someone to be able to download a whole list of contacts from HubSpot. But do you really want them to be cut off from their email, calendar, and personal contacts? Shouldn’t you work with them to set up an autoresponder or figure out what happens to their email?

3. Do not promise this will never happen again. You can’t predict the future. You can say “we made the best decision possible, so that hopefully we won’t have to do this again.” Offer reassurance through facts and transparency rather than empty promises. 

4. Do not delegate the responsibility for deciding to lay off employees. As the CEO, this decision is yours to own. Also, do not blame someone else or the economy. Circumstances contribute, but at the end of the day, the buck stops with you, and again, you’re the one making the decision. 

5. Do not make mistakes about who is on which meeting invitation list or which employment list. Double check the list yourself, then have someone else check it. 

FAQs

I held a webinar recently with about 20 CEOs on this topic, and there were a number of questions that came up with interesting crowdsourced answers. Here are some snippets of some of them:

Q: How much severance is the right amount?

A: This is impossible to generalize—if you’re really out of cash, you may have your hands tied. If you can stick to your normal policies, you should. Companies represented on the call tended to give 1-2 weeks per year of service. Other thoughts that came up were: (a) offering a long post-termination exercise period for vested options, (b) accelerating some vesting, (c) creating a Salary Bridge program, which we did once at Return Path. The Salary Bridge program offered people an additional X weeks of continuing severance beyond the standard package if they still hadn’t found a job (but were trying and could show us they were trying) after their severance ran out. Very few people needed this, but the goodwill from offering it was huge.

Q: Have you ever considered salary cuts?

A: Yes. Usually a big layoff will come with some kind of salary cut for those who are staying, even if it’s just executives or just you as the CEO (which is more symbolic than anything else, but symbolism matters). Companies also had experience with doing salary cuts and reinstating the salaries as soon as the economic situation improved. One company talked about doing a 5% salary cut but then offering everyone a 10% bonus based on company financial milestones. In situations like this, it’s also a good idea to share metrics. How many jobs are you preserving by making cuts? 

Q: Do voluntary termination programs work? 

A: They might make you feel better, but be wary of doing them lest you lose key people you don’t want to lose!

Q: Can I expect additional employee attrition after a layoff?

A: Almost certainly. Any time you jolt the system, you’ll produce some unintended consequences. People will feel less stable in their role. Do your best to reassure key employees—even to the point of bringing a couple of them into the know immediately ahead of a layoff—so you don’t lose more people you don’t want to lose. Be wary of offering additional compensation or bonuses for them to stay, unless you are promoting them into expanded responsibilities (which can make sense if you’re consolidating things). Offering some people a raise “for no reason” while you’re letting other people go isn’t a great look.

Q: What about customer communications?

A: Our group was very mixed on whether or not you should do proactive external communications about a layoff. If you run a B2B organization, being a little more transparent with customers shows them you care about them—and gives you an opportunity to talk to them about any changes that might affect them, their service team, or their service levels. In a B2C organization, you’re likely either going to do something public like a short, empathetic blog post, or nothing at all. In all cases, please make sure you have a well developed internal FAQ and clear policies about who can and can’t talk externally as a company representative before doing a layoff so you’re not caught flat-footed.

Layoffs are messy and unfortunate, but you can still handle them artfully as a leader. How you handle layoffs will impact how your company recovers, it’ll impact your reputation as a CEO, and most importantly, it’ll impact the lives of the employees you laid off. I talk a lot about having a people first culture. One of the things I’ve learned about building companies with this in mind is that it’s got to be true all the way through. Even when you resort to layoffs, the people come first. 

(This post also appeared on the Bolster blog.)

The Good, The Board, and The Ugly, Part III

To recap other postings in this series:  my original, Brad Feld’s, Fred Wilson’s first, Fred’s second, Tom Evslin’s, and my lighter-note follow-up.

So speaking of lighter-note takes on this topic, Lary Lazard, Tom Evslin’s fictional CEO who ran Hackoff.com, now has his own tips for effective board management.  You have to read them yourself here, but I think my favorite one is #3, which starts off:

Never number the pages of what you are presenting.  Lots of time can be used constructively figuring out what page everybody is on.

Enjoy.

Why I Love My Board, Part III

My prophesy is starting to come true.  In Part I of this series four years ago, I asserted that

Fred may be the only one of my directors who has done something this dorky, this publicly, but quite frankly, I could see any of us in the same position.

Now, Brad Feld is no shrinking violet.  As far as I’m concerned, he made his film debut in the memorable “Munch on Your Bones” video (short, worth a watch if you’re a Feld groupie) something like 6 or 7 years ago for an all-hands meeting I ran.  But his newest short feature film, “I’m a VC,” made with his three partners, Jason, Ryan, and Seth, is a must-see for anyone in the entrepreneur-VC set and puts him up there with Fred in the pantheon of “this dorky, this publicly.”

I Don’t Want to Be Your Friend (Today), part III

My first thought when my colleague Jen Goldman forwarded me a SlideShare presentation that was 224 pages long was, “really?”  But a short 10 minutes and 224 clicks later, I am glad I spent the time on it.

Paul Adams, a Senior User Experience Researcher at Google, put the presentation up called The Real Life Social Network.  Paul describes the problem I discuss in Part I and Part II of this series much more eloquently than I have, with great real world examples and thoughts for web designers at the end.

If you’re involved in social media and want to start breaking away from the “one size of friend fits all” mentality – this is a great use of time.

The Gift of Feedback, Part III

Last week, I posted about my new development plan.  I thought I’d also share a “team development plan” that we crafted this year for the entire Executive Committee at Return Path (basically me and my direct reports), coming out of all of our 360 live reviews taken as a whole.

1.  Push each other harder and be continuous in our effort to provide the team and each of us feedback and further develop:  Improve ability to handle conflict as a group; Drive this work deeper into the organization; “Eyes/ears/mouth open;”  Explore how to better serve as role models to the rest of the organization, especially our direct reports/the next level of management; How do we get the Level II to function in the way that we do?
2. Getting messaging out/improve our communications as a team to the rest of the organization
3. Be more hawkish with underperformers:  Exert a discipline in dealing with problems; Making tough calls that don’t feel very good; Do we accept mediocrity?
4. Take responsibility for everyone as a group
5. Do we have a team of A+ players?  How do we recruit them as we get bigger?  Can we attract the best?  Or pay differently?  Revisit incentive comp plan if we don’t feel like it’s working as intended?
6. At least 2x/year comprehensively evaluate next level management to assess bench strength
7. Goal: to have this executive team be the outlier and be able to grow and each and as a team be able to manage a $100MM company

Thanks to our friend Marc Maltz at Triad Consulting as always for facilitating these great sessions and distilling the learnings down into bite-sized pieces for us!

Collaboration is Hard, Part III

In Part I, I talked about what collaboration is:

partnering with a colleague (either inside or outside of the company) on a project, and through the partnering, sharing knowledge that produces a better outcome than either party could produce on his or her own

and why it’s so important

knowledge sharing as competitive advantage, interdependency as a prerequisite to quality, and gaining productivity through leverage

In Part II, I suggested a few reasons why collaboration is difficult for most of us

It doesn’t come naturally to us on a cultural level, it’s hard to make an up-front investment of time in learning when you don’t know what you’re going to learn, and there’s a logistical hurdle in setting up the time and framework to collaborate

So now comes the management challenge — if collaboration is so important and yet so hard, how do we as CEOs foster collaboration in our organizations?  Not to say we have the formula down perfect at Return Path — if we did, collaboration wouldn’t show up as a development item for so many people at reviews each year — but here are five things we have done, either in small scale or large scale, to further the goal (in no particular order):

1. We celebrate collaboration.  We have a robust system of peer awards that call out collaboration in different ways.  I will write about this in longer form sometime, but basically we allow anyone in the company to give anyone else in the company one of several awards (all of which carry a cash value) at any time, for any reason.  And we post the awards on the Intranet and via RSS feed so everyone can see who is being appreciated for what reason.  This tries to lower the cultural barriers discussed in the last post.
2. We share our goals with each other.  This happens on two levels, and it’s progressed as the company has gotten more mature.  On a most basic level, we are very public about posting our goals to the whole company, at least at the department level (soon to be at the individual level), so everyone can see what everyone else is working on and note where they can contribute.  But that’s only half the battle.  We also have increasingly been developing shared goals — they show up on your list and on my list — so that we are mutually accountable for completing the project.
3. We set ourselves up for regular collaborative communication.  Many of our teams and departments use the Agile framework for work planning and workflow management, including the daily stand-up meeting as well as other regularly scheduled communication points (see other posts I’ve written about Agile Development and Agile Marketing).  Agile takes out a lot of the friction caused by logistical hurdles in collaborating with each other.
4. We provide financial incentives for collaboration.  In general, we run a three-tiered incentive comp program.  Most people’s quarterly or annual bonuses are 1/3 tied to individual goals achievement (which could involve shared goals with others), 1/3 tied to division revenue goals (fostering collaboration within each business unit), and 1/3 tied to company financial performance (fostering at least some level of collaboration with others outside your unit).  This helps, although on its own certainly isn’t enough.
5. We provide collaboration tools.  Finally, we have had developed reasonably good series of internal tools — Wiki, Intranet, RSS feeds — over the years, all of which are about to be radically upgraded, to encourage and systematize knowledge sharing.  This allows for a certain amount of "auto collaboration" but hopefully also allows people to realize how much there is to be gained by partnering with other subject matter experts within the company when projects call for it, alleviating in part the "you don’t know what you don’t know" problem.

So that’s where we are on this important topic.  And I’m only finding that it gets more important as the company gets bigger.  What are your best practices around fostering collaboration?

Everyone’s a Direct Marketer, Part III

With every company as a direct marketer, and with (hopefully!) every company embracing some of the best DM principles, what does this shift mean for the way companies will be structured in the future?

First, let’s talk about the internal structure of a company.  The biggest shift going on here is that customers are becoming a more important part of all employees’ daily lives, not just those in the advertising department.  I wrote an earlier posting called Everyone’s a Marketer which applies here.  Most likely, more and more members of your organization are touching customers every day — and they need to be trained how to think like marketers.

But beyond that, companies will be constructed differently in the future as well.  While not true in some industries, there are many industries founded on the “mass” which will never be the same again.  Here are three examples of how direct marketing is infiltrating — but enhancing the opportunities of — corporate America.

– Disney’s film unit used to make movies only for theatrical release.  Today, they have an enormous volume of direct-to-video (or DVD) movies that never see the big screen but that drive huge sales numbers when marketed to Disney’s customer email database.

– Ralph Lauren used to make Polo shirts with a fixed number of configurations of shirt color and knitting color of the logo.  Now, you can go onto Polo.com and custom build a personalized shirt for someone with the right size and color combination of their college or company or favorite baseball team.

– Barry Diller used to run a studio, then he bought a TV network called the Home Shoping Network (and, I’d add, a lot of people laughed at him for doing so).  He has now turned HSN into InterActive Corp, a true convergence company that mixes content and media with commerce and direct marketing with brands like Match.com, Ticketmaster, eVite, CitySearch, and Expedia.

That’s it for this series.  All thoughts and comments are welcome.

In Defense of Email, Part 9,732

I commented today on our partner Blue Sky Factory’s CEO, Greg Cangialosi’s excellent posting in defense of email as a marketing channel called Email’s Role and Future Thoughts.  Since the comment grew longer than I anticipated, I thought I’d re-run parts of it here.

A couple quick stats from Forrester’s recent 5-year US Interactive forecast back up Greg’s points con gusto:

– 94% of consumers use email; 16% use social networking sites (and I assume they mean USE them – not just get solicitations from their friends to join).  That doesn’t mean that social networking sites aren’t growing rapidly in popularity, at least in some segments of the population, and it doesn’t mean that email marketing may not be the best way to reach certain people at certain times.  But it does mean that email remains the most ubiquitous online channel, not to mention the most “pull-oriented” and “on demand.”

– Spend on email marketing is $2.7b this year, growing to $4.2b in 2012.  Sure, email by 2012 is the smallest “category” by dollars spent, but first of all, one of the categories is “emerging channels,” which looks like it includes “everything else” in the world other than search, video, email, and display.  So it includes mobile as well as social media, and who knows what else.  Plus, if you really understand how email marketing works, you understand that dollars don’t add up in the same way as other forms of media since so much of the work can be done in-house. 

What really amazes me is how all these “web 2.0” people keep talking about how email is dying (when in fact it’s growing, albeit at a slower rate than other forms of online media) and don’t focus on how things like classifieds and yellow pages are truly DYING, and what that means for those industries.

I think a more interesting point is that in Forrester’s forecast, US Interactive Marketing spend by 2012 in aggregate reached $61b, more than triple where it is today — and that the percent of total US advertising going to interactive grows from 8 to 18 over the five years in the forecast. 

The bigger question that leaves me with is what that means for the overall efficiency of ad spend in the US.  It must be the case that online advertising in general is more efficient than offline — does that mean the total US advertising spend can shrink over time?  Or just that as it gets more efficient,
marketers will use their same budgets to try to reach more and more prospects?

Doing Well By Doing Good, Part III

In Part I of this series, I blogged about my friend Raj Vinnakota and his amazing adventure starting the SEED School and Foundation in Washington, D.C.  In Part II, I extended the conversation to some of the things we do at Return Path to help make the world a better place — even though our business model is less “inherently virtuous” than that of many other organizations, particularly non-profits.

One thing we did last fall in the wake of the hurricane devastation on the Gulf Coast was pledge to send one or two groups down to New Orleans with Habitat for Humanity to assist in the recovery and reconstruction efforts, giving people the week of paid time off and covering a portion of their travel expenses.  We have six member of the company down there right now.

My colleague Tom Bartel is blogging about the experience every day this week, so far posted here, here, and here.  (And if I had to guess, since this posting will live on the web long after today, I’d say his postings for the next two days will be here and here.)  It’s an amazing story, a grim reminder of both how much damage there is AND how little has been done so far in more than six months since Katrina, and Tom chronicles it well.

I’m incredibly proud of our whole team down there — Tom, Stephanie Miller, Dan Deneweth, Melinda Plemel, Jeremy McGuire, and Harry Pallick (apparently the group’s Tool Captain — who knew he had that hidden talent?).  Way to go, guys!

UPDATE:  Tom’s final two postings are here and here.

Gmail, I Don’t Get It, Part III

This is the third in a somewhat drawn-out series of postings on Gmail featuring some interesting data from Return Path’s Email Change of Address service, which captures self-reported address change data from nearly 1 million consumers every month.

The first posting, back when Gmail launched nearly a year ago, was that I didn’t understand the fuss.  This is even more true now that Yahoo is in a “free storage” war with Google.

The second, in November, had some change of address stats reporting that the numbers of people joining Gmail was tiny relative to other ISPs…and also that Gmail was starting to have people switch away from it, but only at the rate of about 1 for every 3 people joining it.

So we have some new updated data now from the first quarter that are even more interesting.  First, the number of people joining Gmail seems to have flattened out over the last couple of months.  Our metric is about 14,000 in each of the last few months (remember, that’s not the whole number, just 14,000 out of our 1 million).  But the flattening is the highlight.  There’s still the same competitive set — lots of Hotmail churn, some Yahoo, very little from AOL and other providers.

Here’s the kicker, though.  At least within our data set, we actually saw more people LEAVE Gmail than join Gmail in February and March.  That surprised me quite a bit.  One side note, about 9% of the change volume for Gmail is people changing from one Gmail account to another.

Is Gmail in trouble?  I doubt it.  But I do continue to wonder if they’ll ever be able to achieve the market share in email that people predicted at the beginning of Gmail.

Blogiversary, Part III

OnlyOnce turns three today.  While year 1 was exciting and year 2 was still a build, this year has been more about maintenance.  I don’t mean that in a bad way — I still enjoy writing it, but I am finding it a little tougher to make time for it (probably more a function of other things going on in life).  Also, I periodically catch myself starting some post or other and realizing that I wrote it, or something much like it, sometime in the past!

I think in honor of the third blogiversary, I’ll reinvigorate today by posting three times!