Understanding the better.com layoffs fiasco
A lot is being said and written about the layoffs at better.com and people I know are mortified by the way the CEO terminated the employees over a video call. When we hear such news, our natural response is to assess them with our emotions.
Business is all about revenue generation, profits and financial statements. Money and emotional quotient (EQ) never goes hand-in-hand. When business goes down, it is not the matter of if the business will bounce back. It is all about time. How long can a company sustain itself before business picks up again or it is forced to consolidate its finances is the burning question. Reducing the workforce is one of the ways to reduce the company’s expenses. Hire and fire is not the way to manage people but is a very efficient way to run businesses especially when the supply of people far exceeds the demand for them in the market.
It is not really lack of empathy on the CEO’s part, just that emotions cannot come in the way of doing business which is why he says in the video that he cried the last time he fired his employees and he hopes to be stronger this time. Termination over video call is undoubtedly terrible but it helps to keep the emotions out unlike in a physical meeting. If his job is to make the company profitable, consolidation is also his call. The timing is also not so bad I suppose because companies open up for recruitment in January.
This isn’t a one-off case, IBM closed down business units and terminated 15,000 employees globally in 2014 and WeWork reduced 20% of its workforce in 2020. We are not used to seeing layoffs in the traditional businesses but in the startup ecosystem we can expect to see a lot because its all about investment and ROI and companies are accountable to its investors for everything it does and doesn’t do.
The company receiving a cash infusion and supposedly going public according to this article is irrelevant in the context. An external cash injection is not necessarily the sign of a company bouncing back as exemplified by how a consortium of banks kept on infusing cash flow into the now defunct Indian airline Kingfisher when its business floundered and showed no signs of picking up. IPO is just an eyewash to cover the investments of the company’s investors and help them reap profits as this post about Zomato’s IPO journey illustrates.
So irrespective of all the backlash, after the global market devastation caused by COVID, expect this to become a precedent if market conditions do not improve.