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Tough times call for tough decisions: advice from startup founders on tech layoffs

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The tech industry’s rapid growth has been the envy of other sectors for years, but the economic downturn has hit the industry hard. The start of 2023 has shown that layoffs in the sector are increasingly common, with tech giants like Google, Amazon and Microsoft topping the unpopular charts, with more than 100,000 tech workers having been dismissed. licensed over the last two months.

While startups are often in a very different position than big tech companies when it comes to mass layoffs, startup founders and CEOs may also feel the pressure when it comes to making such decisions, although at a smaller scale.

A major difference is that startups often have smaller teams where everyone feels a sense of ownership and pride in the company’s success. As a result, layoffs can be particularly difficult and emotional, especially for small businesses where every employee is a valuable contributor.

Additionally, startups may have less room to absorb the financial impact of layoffs, which can make the decision-making process even more difficult. Added to this is the added pressure of maintaining investor confidence and company reputation, which can be damaged by poorly managed layoffs.

So, when faced with tough decisions and difficult circumstances, leaders still need to step up and do what’s right for their business. However, what do startup founders and CEOs consider when it comes to making tough decisions? The Recursive spoke with founders in the region about their approach to this issue and whether they have any strategies on the painful topic of layoffs.

Make the tough decision when you have to

Startup founders themselves explain that there are various factors to consider, such as the financial health of the organization, employee performance metrics, and the strategic direction of the company.

“We recognize that layoffs can have a significant impact on those affected and their families. It’s not just about losing a job, but also about losing income, benefits, and a sense of security and stability. It can be a traumatic experience and one that we take very seriously,” a fintech startup CEO who wished to remain anonymous told The Recursive.

“However, our success depends on the performance of our employees, and we believe it is important to have a high-performing workforce. Therefore, we would evaluate employees based on their contribution to company goals and productivity,” he adds.

Cost cutting proves to be another important factor in the decision to lay off employees, particularly if the company is facing financial difficulties or needs to redirect its resources to invest in other areas of the business – or adapt in the event of an economic slowdown.

“Decisions are now being made to cut tens of thousands of jobs. From this point of view, it may seem unethical to us and we can condemn it: in business there is neither ethics nor love, but only interest. For me, this would be crucial if we did not have the financial means to survive. Generally, I would do my best to keep the team, but if that’s not possible, then I would have to make layoffs. And I would make the most profitable decision,” said Ariton Zanev, co-founder and CEO of North Macedonia-based startup Task ‘N Go.

For others, performance and commitment are crucial when deciding who to fire. Blagoja Chavkoski, CEO and founder of Skopje-based software development startup ICE LABS, says that when it comes to what needs to be done, those who achieve better results are more likely to keep their jobs.

“For me, commitment is crucial, which is why I would look to keep those who do their job very well. If I were faced with a crisis situation, then a second factor would likely be based on their salaries. So what I would consider first is who has a serious approach to their responsibilities. Then I would look at how much a person makes for their work and what their work ethic is, and then I would make the call,” Chavkoski told The Recursive.

Fight or flight responses during layoffs

For Zagreb-based esports entrepreneur Nikola Stolnik, there are many elements that can determine what actually leads to these types of unfortunate situations for employers and businesses, and what can be done in response.

“It is difficult to determine the exact reason. It’s most likely a mix of external funding with no clear path to profitability and a lack of sponsorship options that most of us rely on. The latter is based on unmet customer expectations and investments based on hype – and it all boils down to layoffs and downsizing,” Stolnik, founder and CEO of an e-startup. sport. Good gametells The Recursive.

Therefore, when faced with this type of decision, it is essential to be aware of your own situation.

“It’s easy to be general once the battle is over, but we have always been extremely conscious of our cash flow, our profit and loss accounts and our business development. Part of it is just starting up, being from the Balkan region (not having a secure foothold in any sense of the word) and not relying on investors. The conservative mindset is ridiculed during the upswing, but when the downside comes, it seems to be common logic,” says Stolnik.

For now, this approach has worked for Good Game – but as the Croatian founder points out, you never know what the future holds, so it’s always good to be cautious.

“This approach allowed us to not lay off anyone or downgrade in any way. However, we are still in fight or flight mode, as we have been for the last 5 years, and I may write a “Things to Avoid When Building a Startup” article on LinkedIn in 12 months. But for now, everything is fine. » concludes Stolnik.

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