This may sound harsh,
But any "layoff" of a single digit % of employees is usually just a reshuffling
The bottom 5%-7% are moved out, to replace them with better performers
Net headcount rarely declines
— Jason ✨Be Kind✨ Lemkin 🇮🇱 (@jasonlk) May 25, 2022
Layoffs sound scary, and they are scary.
But sometimes, small layoffs are a good idea — even if you are fairly efficient and have tons of cash.
You don’t totally get this until you’ve worked in a Big Tech Company. But there, the rules usually are you can’t really fire anyone. And so as the years go by, teams fill up with more and more mediocre folks. They can’t be fired, so they never leave The Big Tech Company.
So in a Big Tech Co, when you do get to do a “layoff”, managers actually almost get excited. Because now, for the first time, they can move on from their worst hires. Because they can put them on the layoff list.
I don’t think real SaaS companies should ever be forced to do large layoffs, i.e. cutting to the bone. Because you should be able to predict your growth well enough, especially with 100%+ NRR, to know how many heads and folks you need in the next 12 months. That’s a real failing on you if you get that wrong. SaaS revenues shouldn’t fall overnight if things get a little tougher like some types of B2C and fintech revenues.
But when you get bigger, over 80, 100, 200+ team members … sometimes a small “layoff” is worth doing in slightly more challenging times. You can replace those 5% or so you move on from with better folks. That doesn’t actually save you money per se in the short term. But it lets you get better hires in for the same hiring budget and plan.
And really, when you move on from the bottom 5% of your hires — you almost always do better. It’s harsh, but you usually don’t need the bottom 5% once you scale. We all make a few hires that just don’t work out (and that’s often our fault, not theirs). Some of them see it and leave on their own. But others see it and hide. And never leave on their own.
In slightly tougher times, swapping out a bottom performer for a top performer often does a bit of magic. On the exact same budget.
Swap one rep hitting 20% of plan for one that hits 200% of plan … or a CSM that sort of waits for issues to come up for one that actively drives NRR up … and a little bit of magic happens.