I’ve spoken to a lot of CEOs this week who are going through layoffs or who are thinking of going through going through layoffs. The list of those who’ve pulled the trigger gets longer every day, and the unparty seems to just be getting started based on the email flow that we’re seeing.
Why are companies doing this now? Based on the CEOs I’ve spoken with, it isn’t just about cutting costs in preparation for a downturn. Some CEOs see this as a once-in-a-startup opportunity to get rid of the deadwood in the company.
These companies see the Wall Street meltdown and a string of very public statements by venture capitalists like Sequoia Capital, Benchmark Capital and Ron Conway as a way to avoid the negative press and attention around letting employees go.
Back in the 90s and before companies could shed workers without any real fear of publicity unless they were large companies making large cuts. A young startup letting a third of employees go wouldn’t get much – or any – press at all. But in the age of everyone-is-a-publisher it takes just a second after someone is walked out the door for them to post about it on Twitter or their blog, and it spreads from there.
A company that has made layoffs is branded a loser, and it becomes very hard to get positive press, recruit new talent and close new rounds of financing. Until now that is. Companies that have made layoffs in the last week are generally being given a pat on the back for being financially prudent.
When we heard that MySpace, for example, was laying off 5% of staff in July, the companies COO spent a great deal of time explaining to me that it wasn’t a sign of financial weakness. Rather, they just wanted to fire the 5% of staff that weren’t really pulling their weight or putting in the effort.
Now companies don’t have to go to the trouble of explaining themselves when they shed workers. They just get lumped in with the others who are also “thinking ahead.”
Clearly not all, or even most, of the layoffs are hidden terminations of non-performing employees. But many of them are, CEOs are telling me off record. It’s not like the names are being drawn out of a hat at random. The superstars tend to stay.