Founders are being hit hard by layoffs, too
14 December 2022
It’s a difficult time for many in tech. For employees who have been laid off, I’m sorry for the pain you are going through. I hope you find positives in this unfortunate experience and bounce back stronger.
Social media is filled with shout-outs to help those who are affected by layoffs and it’s truly heartwarming to see people looking out for each other.
But who’s rooting for the founders?
As layoff news spreads, plenty of “expert voices” are speaking out against founders. They’re invariably described as stupid, naive, or even evil. Because of their poor foresight, these stupid founders overhired and then had to fire staff.
To paraphrase one post I saw from a non-founder with 20/20 hindsight: “Founders are dumb. They don’t know how to run a business. It was common sense that the pandemic would end and online growth would slow. Why overhire?”
What nonsense. No one knows what the future holds and founders, like everyone else, do their best and execute according to plan. If the situation changes, the plan has to change.
What should a founder do when the market takes a hit? Stay the course and let the company burn to the ground? Is that what a great leader would do?
That would be irresponsible. Layoffs affect a minority of the company, so the majority can continue to build and ship. While it isn’t pleasant, it’s reality.
Suffering in silence
Few understand the struggles founders face when executing layoffs.
In short, it sucks. Try spending days repeating the same bad news to the people who will be laid off. It’s depressing and can leave emotional scars.
When I had to carry out layoffs a few years ago, I broke down halfway. But I had to continue the process. The guilt and pain lingered with me for a long time.
Layoff decisions are hard to make. No one wants to be that guy and it’s oftentimes the last card left to play. Yes, there are evil founders out there, but most of the ones I know build and serve with great intentions.
After layoffs, it’s natural that other employees will leave for various reasons, which would create gaps in operations. While plugging holes, founders have to keep morale high and communicate intensively on how the company will turn things around.
Privilege comes with risk
But founders are well-compensated, right? And they are always not part of the layoffs.
Well, that’s not entirely true.
In some startups, the best-paid person isn’t the founder. In fact, in the earlier years of a startup, it’s common for the founder to get paid peanuts. Some founders get fired by their boards, too.
As for shares, they only have value on paper. They may make founders look rich, but many are cash poor. The paper value isn’t realized until a meaningful exit happens.
Only about 4% of companies survive past the 10-year mark. In the last decade or so, there have been less than 500 M&As in Southeast Asia and just a handful of IPOs.
While founders can hit the jackpot, the odds are against them. High returns come with high risk.
All founders will go through immense stress and heartbreak, but only a tiny percentage will be successful.
VC-funded growth
The startup community is obsessed with hyper-growth. Hockey stick charts are our porn but, just like porn, this model has been heavily criticized. In hindsight, the “growth at all costs” approach is wrong.
But equally, there’s nothing wrong with founders who want to grow their startups into giants very quickly. Most investors like to fund those companies, so it’s a match.
As long as there are matches, we will keep seeing heavily funded startups gunning for hockey stick growth. And when the growth stops, cuts will happen.
Just humans
Employees must enter the startup world with their eyes wide open. If you aren’t ready to take a risk, don’t join a “go big or go home” company.
The next time you read startup layoff news, spare a thought not just for the affected employees, but also for the founders.
They have most likely played their last card and are hurting just like anyone. Founders, like you, are people too.