Uncertain economy The backdrop of 2022 has left businesses and their founders in the middle of a rock and a difficult place.
Many CEOs can’t afford to live within the status quo they enjoy as part of a rosy 2021. At the same time, they are also struggling to raise new capital – and those who have the ability to raise money and widen the runway are navigating the cultural complexity of downward rounds.
The unfortunate reality is that many companies are cutting staff to create more runways. This force reduction (or RIF) is a more permanent version of layoffs, where the budget changes that need to be made cannot be addressed by a temporary change in headcount. the.
Some of QED’s portfolio companies have had to do RIF. Many people who haven’t done so are having purported discussions about whether or not they should, especially at a time when they are reducing marketing spending and cutting both research and development plans. development as well as pet projects.
As experienced ex-operators, we have experienced these dynamics in the past. In fact, we’re in the incredible position of being able to help our founders navigate these volatile waters because we’ve been through it so many times before.
Our best practice advice to CEOs is to cut deep enough that they’re confident there won’t be a second round in the next few months.
Earlier this summer, we began sharing a five-page document outlining our guidance with several portfolio company CEOs based on our personal experiences and observations. The document is not meant to live in isolation – rather, it is a foundation to build on in collaboration with investors, board members, and senior leadership. We have had extensive discussions with most of our companies about why, when and how to cut.
We break the process down into three parts – planning, execution, and tracking.
In some parts, the guidelines seem almost invalid – references to legal counsel, laws specific to local jurisdictions, disabling access to email and Slack channels. The inevitable fact is that while you will need to conduct RIFs in an organized manner based on sound business logic, there is always an overarching need to convey messages with empathy and respect. .
Not all companies that have implemented RIF have done so without making mistakes – even if the actual cuts go as planned, avoidable mistakes can have lasting effects on employees. member stayed.
Planning
The planning factor of RIF cannot be overstated.
It begins with assembling the RIF control group and expands through risk assessment, scope, budgeting, scheduling, and communications.
In a small company, that team may include only top management. In a larger company, representation from different geographies, units and levels may be required. We’re working with our portfolio companies to answer a few key questions that clarify purpose, goals, and story.
- What drives demand for RIFs?
- Could it have been avoided? What other options are or were there? What other actions are or can be complementary? If leadership makes mistakes, take responsibility for those mistakes.
