How Can Startups Handle Layoffs Effectively?

We are operating under the reality of a transitioning economy swathed by challenges. Startups probably bear the brunt of it  while trying to adapt and keep pace with the industry. Making adjustments in a fast growing business is commonplace today to correct course and to rectify focus areas for growth. Such decisions can often mean downsizing employees in the interest of the business and, at times, survival itself.

However, such moves are bound to have lasting ramifications for a brand and its perception among stakeholders. Companies need to carefully plan such announcements to mitigate any negative fallout. Startups are currently enjoying a growth phase, but need to be doubly cautious when scaling down with practical means. The TinyOwl episode is still fresh in most minds. In this case the company chose to let go of their employees who were predominantly field staff in short notice. With good intention, the co-founders decided to inform the employees in person which, however, backfired and resulted in a veritable hostage situation. Staff of their Pune office restrained the co-founder, demanding that all dues be settled immediately. Even local politicians went banging at their doors..

How did the press report it?

• Layoffs at TinyOwl
• TinyOwl Founder held hostage
• Why did TinyOwl resort to mass firing?
• TinyOwl Founder detained after layoffs

This is the harsh reality of a crisis situation while engaging with the media. I can only imagine the pain such scathing headlines could have caused the founders and the promoters. But the reality is that the damage was done and history will remember TinyOwl for the flawed execution of the downsizing.

Other startups that went through downsizing efforts include Zomato, Spoonjoy, Ola and Housing.com. While Layoffs may be a reality in a volatile economy, what can be managed is the announcement.

Some of the qualities of Startups that make them vulnerable to potential crisis situations are as follows:

• Young teams with limited experience
• Startups are typically risk prone
• Business plans that often lack vision and long term growth prospects
• Erratic messaging when it comes to media relations
• Media is currently on an overdrive when it comes to startup reporting
• Lacks senior counsel when it comes to PR messaging

Given this scenario, there are several steps that a startup can adopt to streamline their PR efforts and to avert possible crisis situations during layoffs.

First, the companies need to understand the importance of Human Resources. A lot of importance must be laid on this valuable asset and proper caution must be exercised in engaging and managing them.

While that is the thumb rule, several planned steps can be taken to avoid any negative fallout during times of layoff:

• Maintain constant communication with employees on the progress of the company through the HR department, through newsletters, noticeboard bulletins, etc.
• Engage with employees to keep them motivated.
• Adopt a transparent approach for management to engage and interact with employees.
• Ensure the media are intimated about developments within the company in a timely manner and that it does not come as a surprise for them.
• Keep channels of communication with the media open at all times.
• Develop sufficient messaging and documents for the media explaining the need for this decision and how they plan to avert such situations going forward.
• Make allies of the media and other important stakeholders during such announcements.

What can the PR agency or internal PR team do during such instances:

• Proactively reach out to the media informing them of this development.
• Be on call round the clock during the exercise to take necessary action as it unfolds.
• Prepare well in advance with proper documentation for possible questions from the media or employees.
• Prepare a FAQ’s document to preempt any possible outcome or surprise that the announcement can throw up.
• Keep the spokesperson briefed adequately.

While the above points represent a broad checklist of actions one can take, the fact remains that preparation, presence of mind and tact are crucial to combat crisis situation. There is never a magic bullet to manage a crisis situation, but proper research and understanding of potential situations will go a long way in managing them effectively.

Startup Mentors and advisors on their part must also incorporate suitable modules to help startups stay grounded with the reality when it comes to working with the media and managing potential situations.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.