When you think you’ve heard the last of the layoffs, there’s more! After a certain point, with companies announcing round after round of mass layoffs, it does make young startups who look up to mature startups question, what is going on?!
Since the endless disturbance in macroeconomic conditions, from COVID-19 to inflation, to the war in Ukraine, the markets have been spooked, VCs are in hibernation, forcing even profitable unicorns to rethink their models and make really tough calls.
Of course, the collapse of Silicon Valley Bank (SVB), the tech bestie, didn’t make the situation any better; it raised the risk of inflation and has also been dubbed the second-largest bank failure in the history of the United States.
But we’re not here to dwell on the negative! We’ve been intently watching all of the restructurings and tracking all of big tech’s next moves with a writing pad in our hand – making notes to help you guys – small business owners and new startup founders! So let’s find out what we can take away from big tech and safeguard our businesses in the near future!
Why do companies restructure?
Restructures are generally when companies aim to realign their resources, processes, and organizational structure to remain competitive and seize new opportunities. They are not necessarily characterized solely by mass layoffs – that’s just one tool for restructuring a company’s priorities.
Here are a few reasons why companies would consider restructuring:
1. Adapting to Changing Market Conditions
Companies may restructure to adjust their operations and strategies in response to shifts in the market. Amazon, eBay, Dell, Alphabet and many, many more have all come forward and admitted pretty clearly that their decision to restructure helps them prepare for an economic downturn.
As upsetting as it is to the employees whose lives get affected, investors have applauded these bold moves. Meta enjoyed an 81% bump in the company’s shares this year.
2. Addressing Financial Challenges:
Restructuring can often involve eliminating redundancies and optimizing processes to reduce costs. In fact, Mark Zuckerburg declared 2023 the “year of efficiency” at Meta. Netflix attributed its 450-employee layoff to the alignment of costs to the slowdown in revenue. Walt Disney Co also cut 7000 jobs to save $5.5B in costs!
3. Focussing on Core Competencies
Companies may restructure to refocus their efforts on their core strengths and key business areas. By divesting non-core or underperforming assets, businesses can concentrate their resources and efforts on areas where they have a competitive advantage.
For example, Disney decided to streamline into 3 main divisions: an entertainment unit for film, television and streaming; a sports-focused ESPN unit; and Disney parks, experiences and products.
4. Keeping Pace with Industry Disruption
Restructuring can help companies adapt to disruptive forces, like technological advancements such as AI or changing customer behaviours. By reorganizing their operations and backing necessary transformation, companies can position themselves better for future expansion.
Microsoft has confirmed that it is re-focussing on priorities like AI with its restructuring.
Ford confirmed that they are eliminating work, reorganizing and simplifying functions across the company. Without mincing words, they even confessed that they have too many people in some jobs and skills that just don’t work for them anymore.
What can we learn from Big Tech restructures?
It couldn’t have been easy for companies to drop the axe on so many employees. Many companies have completely closed up divisions that practically built their legacy. Many have been forced to start new departments and re-prioritize funds and resources into a new company future. But here’s what we can take away from them as small business owners and new startup founders:
Staying agile and adventurous
For most behemoth companies and large startups, this isn’t their first rodeo. Businesses that have stood the test of time have been able to do so because they are open to betting on new visions and making tough decisions to make it happen.
As young companies, we must always remember to zoom out occasionally and look back at the drawing board. Running a business is not a sprint; it’s a marathon, and it’s okay for your roadmap to change. In fact, with smaller teams, fewer decision makers, and much less bureaucracy, staying nimble should be easier for a startup.
However, that flexibility has to be built into your business. This could look like encouraging an environment of continuous learning from Day 1, prioritizing customer feedback into decision-making, investing and adopting technology that keeps you agile.
Accepting your mistakes
A majority of business decisions are hypotheses backed by some amount of data and gut feeling being put to the test. We’re rarely going to get it all right.
Zoom’s CEO Eric Yuan, admitted that they did not take as much time as they should have to analyze their hiring strategies when they were growing rapidly during the pandemic, which led to them laying off 1300 employees.
As difficult of a personal journey as it may be for a founder or founding team to have the courage to admit and own up to their mistakes publicly, it is a poignant moment of accountability for all stakeholders. As founders, we must remember that we are accountable for our decisions toward our employees, investors, partners, and community.
Communicating empathetically
Shopify was accused of making their employees feel like NPCs when their CEO Tobi Lütke announced the complete divestment of their in-house logistics arm. He made it seem like the teams being laid off were distracting from the main quest of Shopify.
You may also remember fintech company Better.com CEO Vishal Garg calling his outgoing employees lazy and ‘dumb dolphins,’ just another example of how important it is to communicate bad news with empathy.
Mark Cuban was famously the torch bearer for reminding companies in 2020 that how you treat your employees in a crisis will define your company for years to come. Startups, hear ye! Even if you’re restructuring just your IT department or laying off a couple of employees, do it in a way that it does not boomerang on you when you’re hiring next!
Navigating Restructuring on a Human Level
Whether it’s divestments, lay-offs, new management, or new departments, any form of restructuring needs a lot of preparation to be managed well on the ground – with retained employees and outgoing employees.
Google workers in London and Zurich made the news recently after staging a walk-out of their offices in protest and solidarity with those laid off worldwide. This was their method of calling out their employer for continuous mass firings. One of Coda’s employees, Alex Gabe, shared his story of being laid off while on parental leave.
On the other hand, Lyft announced about 1072 layoffs but also promised 10-14 weeks of pay, health care coverage through the end of April, accelerated equity vesting, and recruiting assistance. In an exchange filing, it was revealed that they would incur $41 million to $47 million in costs related to severance and employee benefits.
Meta has also done a good job of maintaining accountability for their ‘Year of Efficiency’ with consistent updates from senior management around their game plan. This ensures employees who are retained within the company are allowed to re-develop their trust in the company.
Thinking beyond layoffs
Stanford Graduate School of Business Professor Jeffrey Pfeffer worries that firing employees is simply copycat behaviour for startups. Startups may need to let go of people now, but when economic situations improve, they’ll need to hire again, which basically means that companies are buying labour at a high price and selling low. He does not believe that laying people off solves the underlying reasons that companies choose to restructure.
As small businesses and new startups, we have small teams that are closely bonded. Firing even one employee can hit morale terribly! Just because we are watching large companies dispense off their teams in large chunks doesn’t mean it’s the only way to restructure, reduce costs or course correct.
You can consider multiple other pathways first, like;
- Redefining roles and responsibilities of existing teams
- Re-engineering processes and optimizing systems within the company
- Training and Upskilling existing teams to expand their capabilities
- Outsourcing partnerships to leverage additional skills and resources
- Restructuring debt or financial obligations to improve financial health
Zapier, rather than fire employees, launched a “secondment” program, where workers are temporarily shifted to new roles. With hiring at a complete standstill, employees in the HR department were allowed to choose to be reassigned to other departments.
Similarly, Atlassian also introduced a secondment program and published a guide about how it works.
Grab new talent!
That’s right, and then some actually capitalize on downturns to grab valuable talent that have been laid off from large companies that otherwise would not be available to them! Younger startups can juice this opportunity to get their hands on skilled individuals who can add massive value to their company with big tech experience!
Starting up in Canada?
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