The rapid growth of the technology industry has been the envy of other sectors for years, but the economic downturn has hit the industry hard. The beginning of 2023 has shown that layoffs in the industry are becoming increasingly common, with tech giants like Google, Amazon, and Microsoft topping the unpopular charts, as more than 100 thousand tech workers have been laid off during the past couple of months.
While startups are often in a very different position from big tech companies when it comes to massive layoffs, startup founders and CEOs can also feel the heat when it comes to making such decisions, albeit on a smaller scale.
One major difference is that startups often have smaller teams where everyone feels a sense of ownership and pride in the company’s success – and as a result, layoffs can be particularly challenging and emotional, especially for smaller companies where every employee is a valuable contributor.
Moreover, startups may have less cushion to absorb the financial impact of layoffs, which can make it even harder to navigate the decision-making process. Тhere is also the added pressure of maintaining investor confidence and the company’s reputation, which can be damaged by poorly handled layoffs.
Thus, in the face of difficult decisions and challenging circumstances, leaders still have to step up and do what is right for their businesses. However, what do startup founders and CEOs take into consideration when it comes to making the tough decisions? The Recursive talked to founders in the region on what is their approach towards this issue and whether they have any strategies when it comes to the painful topic of layoffs.
Making the tough call when it needs to be made
Startup founders themselves explain that there are various factors to consider, such as the financial health of the organization, performance metrics of the employees, and the strategic direction of the business.
“We recognize that layoffs can have a big impact on the individuals affected and their families. It is not just a matter of losing a job, but also the loss of income, benefits, and a sense of security and stability. It can be a traumatic experience, and one that we take very seriously,” a CEO of a fintech startup who wished to remain anonymous tells The Recursive.
“However, our success is driven by the performance of our employees, and we believe it’s important to have a high-performing workforce. Therefore, we would assess employees based on their contribution to the company’s goals and their productivity,” he further adds.
Cost-cutting proves to be another significant factor in the decision to lay off employees, especially if the company is facing financial challenges or if they need to redirect resources to invest in other areas of the business – or to adapt when there is a downturn.
“Decisions are now being made to lay off tens of thousands of jobs. To us it might seem unethical from this perspective and we can condemn it – in business there is no ethics or love, but there’s only interest. For myself, it would be crucial if we didn’t have the finances to be able to survive. In general, I would try my best to keep the team, but if it is not possible, then I would have to make layoffs. And I would make the most cost-effective decision,” Ariton Zanev, co-founder and CEO of North Macedonia-based startup Task ‘N Go tells The Recursive.
For others, performance and engagement are crucial when it comes to deciding who to lay off. Skopje-based Blagoja Chavkoski, CEO and founder of software development startup ICE LABS says then when it boils down to what needs to be done, those that are performing better are more likely to keep their jobs.
“For myself, engagement is crucial, so I would look to keep those that are doing their jobs really well. If I’d be faced with a crisis situation, then a second factor would probably be based on their salaries. So what I’d take into account first is who is having a serious approach towards their responsibilities. Then I’d look at how much a person is earning for his job and what his work ethics are, and then I’d make the call,” Chavkoski tells The Recursive.
Fight or flight responses in times of layoffs
For Zagreb-based e-sports entrepreneur Nikola Stolnik, there can be many elements when it comes to what actually leads to these types of unfortunate situations for any employers and businesses, and what can be done as a response.
“It’s difficult to pinpoint the exact reason for this. It’s most probably a mix of relying on external funding without a clear path to profitability, lack of sponsorship options on which most of us rely on. The latter is based on unfulfilled client expectations and hype based investments – and all of this boils down to layoffs and downsizing,” Stolnik, who is a founder and CEO of e-sports startup Good Game, tells The Recursive.
Therefore, when faced with this type of decision, it is key to be aware of your own circumstances.
“It’s easy to be the general after the battle is over, but we’ve always been hyper aware of our cash flows, profit and loss statements and business development. Part of it is being bootstrapped, being from the Balkan region (not having a secure foothold in any sense of the word) and not relying on investors. The conservative mindset is mocked in bull times, but when the bear arrives, it seems like common logic,” Stolnik explains.
At the moment, this approach has worked for Good Game – but as the Croatian founder points out, one can never know what the future holds, so it’s always good to be cautious.
“This approach enabled us not to fire a single person, or to downgrade in any way. However, we are still in fight or flight mode, as we’ve been for the past 5 years, and I might be writing a “Things to avoid when building a startup” post on LinkedIn in 12 months. But for now, we seem to be doing alright.” Stolnik concludes.