Lesson: Zero to IPO with George Northup

Step #5 Cuts: How to approach layoffs

I think one of the big decisions is what kind of cuts you have to make to restructure the company and how quickly and how deep. In Silicon Valley, we have a lot of first-time and young executives and this is the first time they've had to do anything like this. I would say the biggest mistake people do is they wait too long to do this and also they don't do enough upfront.

Oftentimes in Silicon Valley, we'll see a company do a bit at a time and dribble it out. Maybe once every six months they'll decide that they have to do more and this becomes the death of a thousand cuts. They also end up at the same place that they maybe should have. In the meantime, it completely demoralizes the staff and takes the wind out of the culture.

In my experience, the best thing to do is cut extremely deeply and do it quickly to get it over with and move on. When you fire people, I think it's always difficult for anyone no matter how many times one has done this. The other thing is that no matter how well the firing takes place, the receiving party never feels it's fair. They never feel it's done the right way. They always comment that you should have done it differently and done something else.

I think there's no way around that. I think the best advice I have is to be direct and factual and honestly, get it over with because there's not going to be a right way. The other thing is that there are legalities to this and I think the best advice is that you're not well-advised to talk about the various reasons behind it other than to say that it's a done thing.

After a major restructuring, you have remaining a core group of the company which you have determined will take the company to the next level. Oftentimes you have missing pieces. In one of the companies we needed new technology and leadership and we were bare in that area. I had to go out and recruit somebody and bring them in. In another case, another company needed some major sales talent and had to go out to bring this in.

I think that once a reorganization takes place, you realize that there are several gaps in leadership or in key roles so you start recruiting for those as quickly as possible. In that context, you look for the technical qualifications of these people as well as the cultural fit into the company. It's a very delicate thing because it's almost like bringing in a stepparent into the company. You have to bring it in very gradually in terms of telling them that you're going to do this and also getting their buy-in when you bring these people in.

I think the other thing that's very important in this whole process is to give them a brand new vision of where the company is going because the company has been on a rollercoaster. They need to see where you are headed, the new vision for the company and why the old one failed. At Memeo, in particular, it was very hard after we did a restructuring in 2010. What really got us over the hump is we were able to go out and successfully sign a deal with Sony to build their platform for online sharing. That gave us a new goal, a new vision, and we rallied around that.