From conceptualisation to realisation, the journey to building a successful enterprise can be quite bumpy. While only 50% of startups survive beyond the first five years, the other half lose the battle against market realities and fail to scale.
Because success in business isn’t only a function of the founder’s vision, it is rational for entrepreneurs to surround themselves with people of diverse experience and skills in order to accomplish long-term success.
However, as the business expands, the founder backs off to focus on CEO-only tasks, leaving employees to operate independently in their delegated roles.
Suggested Read: When should founders step down as CEOs of their startups?
At this point, employees may be unaware of all that happens with the management of growth and business sustenance. Even something as grave as a shutdown could come unexpectedly to them.
And often, employees bear the brunt of whatever woes befall a business.
For instance, one of the world’s oldest travel agencies, Thomas Cook, liquidated in September 2019 and ended the jobs of 21,000 staff.
Laying off employees is not only common with failed businesses like the British travel agency. Sometimes it is done to cut costs, while at other times it may be to restructure the workforce.
In 2019 alone, Uber has laid off over 1000 employees and reduced the pay of others, whilst under pressure to clean up its finances after a disappointing IPO in May.
When the lay off happens without notice, the consequences can be severe not only for the affected employees but also for the employer.
Frank (not real name), a Nigerian programmer, worked with a startup but had to leave as the business was starved of funding. Having been laid off unceremoniously without compensation, he had to get another job to make a living.
In retrospect, Frank says the lay off didn’t result in a bitter relationship with his former employer because the founder communicated the state of the business in real-time up until it crashed. And this seems like the right thing to do.
“When projections are not met, investors are not forthcoming, or bond rates are failing, in everything carry your team along. They deserve it,” avers Adewale Yusuf, CEO and founder of Techpoint Africa.
Iris Shoor, an Isreali serial entrepreneur argues that every founder knows when they are about to fail but they are only afraid to speak about it.
As CEO and founder of her third startup, after exiting the previous ones, she attests that founders may want to protect their employees from what seems inevitable. It is better to lay bare the progress so that the people can know where they stand or at least have a clear picture of the current state of the business.
And when it results in eventual failure, there would already be plans to assist employees to move on. Leaving employees in the dark could have a profound effect.
Creating a compensation plan ahead of time
It is not unlikely to find employees sacrificed on the altar of business sustenance or failure, but it has to be done the right way.
Andela, recently caught in the web of laying off staff, let go of more than 400 Andelans to give room for more senior software engineers in a move to realign with market needs.
The official statement stated that the laid-off workers had access to support packages.
A well-defined compensation plan would make the affected staff feel better afterwards, and also forestall agitation that could follow an unceremonious lay off.
But there may be an exception to this when a startup failed because it ran out of funds.
The reasons startups let employees go vary, but the important question to ask is if the employees are prepared for the impact.
Do founders consider keeping every member of the team in the loop when things seem off with the business? With everyone going their separate ways, will it leave behind a feeling of heartbreak or of reminiscence for the positive contributions the business has made to their lives?
Want more stories like this? Subscribe to the Techpoint Africa Newsletter.
New Report: Nigerian startups raised a combined $38.01m in Q3 2019, just 7% higher than Q3 2018. Download the report.
Attend Techpoint Startup School, a 5-day intensive training for budding African tech founders and CEOs. Classes start 2nd of December. Enrol now.