Part of Bob’s continued ramblings.
There have been tons of layoffs recently in the technology sector. The major factor driving this is a shift from investor perspectives of value on growth vs. profitability. And that was driven by very low interest rates. That is not the point of this blog, but just to follow that chain for a minute.
Interest rates were low, so it was both cheap to borrow and investors wanted to get higher returns. The VC, Growth Equity and Private Equity firms all benefited from enormous cash inflows and cheap debt. They were all chasing the business model outlined in The Power Law by Sebastian Mallaby, a book I highly recommend, where you invest in growing a business very fast to grab a market ala Yahoo, PayPal, Facebook, Twitter, Uber, etc. This meant focus on growth over profit. Now that money is getting more expensive, there is a shift from investors wanting to invest in growth to wanting to see profits. That was made clear a couple of weeks ago when Facebook did their quarterly call and Zuckerberg made clear he was going to keep investing in the Metaverse. In the old days that would fly because investors were willing to spend money for 5-10 years to grow a huge new market. Wall Street punished Meta with a 30% drop in value.
Anyway, investors are all telling Stripe, Twitter, Meta, Netflix, and even Amazon, Microsoft and Apple that it is time to focus on profitability. And the only way for technology companies to cut expenses quickly is to cut employees (their major cost). Hence layoffs.
Anyway, I wanted this blog to be about the major life experiences that shaped my views on layoffs and explain how that impacted three different situations in the history of RunSignup.
Growing up in IBM Land
My Dad worked for IBM when I was growing up. At that time they had a culture of “No Layoffs”. When I was in college I had an internship there one summer. We learned in our intro session (although I had heard the story many times) how Tom Watson had not laid people off in the depression and as a result was able to win the big Social Security contract that saved the company and was the foundation to continue forward with many successes.
In the 80’s this contrasted with the rise of Jack Welch’s GE, which also had a large facility in the Binghamton-Endicott-Vestal NY area. He slashed and burned their way back to profitability and installed a “Cut the bottom 10%” each year type of system on an ongoing basis.
I liked the IBM way better. Not laying people off was deeply embedded in me from a young age that a company should take care of employees and employees should be loyal and work hard to help the company grow.
Digital Equipment Layoffs
I spent 11 years at Digital Equipment. During that time the company grew from $1B to $10B. Ken Olsen founded the company. The company culture really helped shape my views – distributing responsibility to each employee, focus on building great technology, and having salaried sales people so they would be incentivized to solve problems more than earn a buck being the primary lessons. He was viewed as an innovator in the mini-computer era (expanding the market beyond mainframes), but missed the boat as PC’s emerged (missed a couple of chances to be central to that era due to a classic case of innovators dilemma). Here is a classic picture of him that appeared in Fortune Magazine:
Of course standing in a canoe can wind up being bad, and indeed Digital hit tough times when growth began to sputter due to missing the PC era (unlike IBM). That began a painful series of layoffs. Digital tried to be very kind in the beginning of that process and I was hoping to get laid off – I would have gotten over a year of compensation plus a bunch of other parting goodies in that first round.
But the canoe had taken on water by then, and there was one series after another of layoff announcements (each with a worse severance package). I could not get laid off in spite of begging, and finally left to join a startup, Bluestone.
What I took away from that experience were a couple of lessons:
- Companies can hit the end of a growth cycle in a market. Don’t drink your own Kool-Aid and believe the growth will go on forever and continue to overhire.
- If there is a major shift in your business and you are forced to cut staff – do it all at once. Bill Gurley of Benchmark fame summarized this well earlier this year in this Tweet.
HP Middleware Layoff
When I left Digital I joined Bluestone. We got a few lucky breaks like having some truly brilliant people as well as hitting the Internet wave early with one of the first application servers. We got to go thru the whole cycle of taking VC money, going public, doing a secondary offering, having our stock go from $15 – $120 and back down to $15 all within a year and then getting acquired by HP.
At the time (2000) HP wanted to move into the higher margin software business and Bluestone was going to be a cornerstone of a broader strategy. I become the GM of the Middleware Division, which was Bluestone plus some other groups at HP – about 700 people. Less than a year after closing the deal, HP shifted strategy and bought Compaq (which happened to have also acquired Digital Equipment a few years before). This led to shutting down the HP Middleware Division and having to lay off about 600 people.
It was by far the worst thing that I have ever had to do. I did my best to do it with compassion and fight for as much money and time as possible for everyone, as well as trying to find ways to help people get jobs. As you can imagine, I have tried very hard not to get myself in a position where I have to make a call like that again.
So I know that Zuckerberg was contrite in his video call with employees announcing the 11,000 layoffs. But he and others bear responsibility for putting the company in that position.
My friend, Kevin Kilroy (he was the Bluestone CEO that took us public), and I often talked about the mistake we made selling Bluestone to HP and how we had $180M of cash in the bank and could have survived much better on our own with a much better outcome for employees and likely investors as well.
RunSignup’s 3 Layoff Potential Moments
We have had 3 moments in our history that could have resulted in layoffs if we ran the company differently. I think all of them were shaped by the three experiences above. When we do our yearly planning and our monthly adjustments based on what is happening in real time, those experiences are always in the background and a guiding influence where we are trying to avoid having to do layoffs.
Lawsuit – Back in 2015 we had started winning customers from a large competitor. That large competitor took the action of suing the customers for breaking their 3 year contract and us for contract interference. We ended up losing a very large customer and it was the first time our business dropped. And it had an impact on our rate of growth as other customers were scared to move. Oh, and we spent $2.5M defending ourselves and customers. The two things that saved us were: 1. Not having ramped our hiring too quickly when we started winning these customers because of our self serve and efficient business model. 2. having a cash buffer that we could afford to lose money for a while. So we froze hiring for quite a while, and buckled down to last out the storm. We knew that in the long term we would grow and emerge from this, and we did.
Pandemic – I’ve told this story many times, including in our 2020 Year in Review. At the time Eventbrite cut 50% of their employees, and we chose to cut everyone’s compensation by 50%. Not a single employee left, and everyone banded together (virtually) to work harder than ever. When I made the announcement on Friday, March 13, 2020, I told everyone that I had no idea how long we could last, but we would all try to get thru it together. We were fortunately saved by Government Programs like PPP and Employer Tax Credits, moving to Virtual, vaccines, and our wonderful customers. If those breaks had not come, we likely would have been forced into layoffs. So we were lucky.
2022 Undergrowth – 2021 was a remarkable comeback year for us. We had growth in our endurance market share, and investors gave us a vote of confidence in 2020. So we had a plan for continued growth in 2022 and had hired according to that plan. However, 2022 did not materialize as we had planned. The endurance market was still not back fully – partly Omicron and partly race directors and participants not being quite ready. This led to the average race being down 20%+ from their 2019 numbers. The other problem was that GiveSignup was not growing like we had expected. So we were losing money the first 9 months of the year. Rather than resort to layoffs, we adjusted our strategy and tried to focus on what we do well and get back to growing into our expenses. That led to a shift to TicketSignup and the farm event market as becoming a growth market for us, repositioning GiveSignup to Peer to Peer Events, and waiting for the endurance market to catch back up. Things have worked out by this fall and we are now back to solid profitability.
No layoffs does not mean that people do not leave RunSignup. We make bad hires, and people make bad career decisions (or maybe a bit of both in many cases). Every company has to make sure that all employees are contributing their share, as it is unfair to other employees and to the health of the company to have people who are not fully contributing. Sometimes that takes the shape of us initiating the action, and sometimes it is the employee who is feeling unfulfilled and leaves. When it is the company taking the action, we try to be transparent with the employee and have chances for improvement, and then try to help with the transition with a severance package when appropriate.
As we look forward to 2023, we are being cautious on our growth estimates and focusing on getting the company into a solidly profitable state. This is kind of the popular thing to do these days, and we are lucky to be in a position to do so without the layoffs that other companies are forced to do.