Layoffs

Yesterday, Twitter laid off about 8 percent of its employees or roughly 1 in 12 people. Most entrepreneurs dread a moment like that more than anything else. It takes the pain of firing an individual employee and massively amplifies it. And yet it is often unavoidable on the path to building a company and sustaining it for the long term. 

Some of the criticism of Twitter’s layoffs took the form of arguing that Twitter shouldn’t have hired those employees in the first place. That criticism amounts to management in the rearview mirror and also ignores the internal dynamics of companies that have either raised a lot of money or been historically very profitable. No matter how disciplined the executive team would like to be eventually such a company will overshoot on hiring.

Between college and graduate school I worked in management consulting. One of the projects was a big cost reduction at a public utility company. At first I felt extremely uneasy about the prospects. As we got going though it became clear that as a utility with “cost plus” regulation there was a fair bit of organizational bloat that had set in over the years. The project was led by someone with a great deal of experience and he had a line that still sounds incredibly cruel “any idiot can fire 10%.” When I asked him what he meant he explained that over time any organization builds up that much slack just due to organizational dynamics.

At the time I thought that the experience we had was unique to a cost-plus regulated utility. But since then I have come to understand that this much slack and more often forms in organizations that aren’t tightly constrained by either lack of equity funding or competition (retail, for instance, is incredibly competitive and you would not find a retailer surviving for long with a lot of slack). There is no process a company can run internally that would apply the same pressure as the market.

Now another criticism one can make is to ask what’s bad about organizational slack when you can afford it? Did Twitter really have to do this or is it just to please Wall Street? Jack’s memo suggests one reason which I also talked about in my post from Monday on hard choices – organizational slack can be an obstacle to actually getting stuff done. That can be more harmful to the long run sustainability of a business than the expense.

To be clear, none of this is to say that layoffs aren’t painful. They are. People have done nothing wrong and yet are subjected to emotional distress and potentially financial turmoil. But it is unreasonable to claim that layoffs can be avoided entirely. So that means as society and as individuals we should work on reducing the pain. Add this as another reason to be supportive of a Basic Income as a broad new social consensus.