The Scoop: One Deep Layoff or Death By a Thousand Cuts?

Formerly high-flying startups face layoff pressure and are responding to this in different ways. Which strategies are they choosing?

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Following up on sector-wide layoffs, the sad trend of companies letting staff go has not slowed. News just from the last week on a few of the many companies that let staff go:

• Stedi let go 30% of staff; 23 people on Tuesday, 2nd August, the majority of them software engineers, and some designers and recruiters, I have confirmed with people impacted.

• SoundCloud will be letting go 20% of staff – about 100 people – the company communicated on Wednesday, 3rd August. I talked with a software engineer there for details.

• Eden Health fired almost all of its engineers, designers and product team – about 40 people – on Tuesday, 2nd August, in what looks like the company being close to ceasing trading. I got the details of what happened from one software engineer who was let go.

• Robinhood laid off 23% of its staff, only three months after laying off 9%, as covered in The Scoop #9.

Stedi is a company which I have mentioned as an example of a standout writing culture in the article Engineering planning with RFCs, design documents and ADRs. The startup operates in the logistics industry, aiming to revolutionize usage of the electronic interchange format (EDI).

The company last raised funding of $50M in August 2020 and had 76 employees before the layoffs. In what is unusual, about 90% of employees were software engineers. The company let go 23 people on Tuesday, 2nd August, in an effort to reduce burn. Employees let go were given 4 weeks of severance pay.

My sources tell me Stedi has close to $30M still in the bank. The company most likely needed to take this drastic step to extend its runway. Although the company did not offer details on any of this information, my guesstimate would be that these layoffs extend the runway of the company from under two years, to three years or more – assuming no revenue generated. As with many VC-funded startups, the challenge for Stedi will be to get to a ‘default alive’ state; that is, to have a path to profitability without any further external investment.

SoundCloud sent an email to all staff on Wednesday, 3rd August, I’ve confirmed with a software engineer working at the company. In this email, the company informed everyone that 20% of the company will be let go in the coming days, saying this step is "(...) necessary given the challenging economic climate and financial market headwinds." Those impacted are to be notified in the coming days.

SoundCloud is no stranger to deep cuts. In 2017, the company executed very deep-cutting layoffs of 40%. I remember this very clearly, as this was when layoffs were uncommon, and this reduction in force caught the attention of the tech world. Working at Uber, I combined with the recruitment team to reach out to tech folks on a public list SoundCloud shared, and I ended up interviewing an engineering manager from the company for a role at Uber.

Eden Health is a concierge health startup headquartered in New York. The company last raised a Series C in February 2021. Then, out of the blue, on Tuesday, 2nd August, about 90% of the tech org was laid off.

I talked with a software engineer who was also laid off and asked if there were any warning signs. They shared:

“We JUST came back from an off-site with a lot of ambitions about next steps for the quarter and plans. We even had a company-wide offsite planned. There wasn't an ounce of warning.

Then, in the morning of 2nd August a colleague posted their name and personal e-mail to the internal chat, saying goodbye and to keep in touch. I messaged them thinking it was a slip up or some joke. 

But this person confirmed that a huge RIF was happening. That was at about 9:30 AM. My laptop and equipment were locked out about three hours later after a very brief meeting with the CEO with a very non-descriptive reason as to why the force reduction was occurring.”

There still is no official reason from the company of why they’ve fired pretty much all the tech team. The laid-off employees are speculating that one of the main investors has requested these layoffs happen as part of a subtle takeover, or a delayed shutdown. All of this likely has to do with the company being probably unable to raise another round of fresh funding.

Layoffs are happening in three distinctly different ways, as I’m observing them.

1. “Cut once, cut deep”. The recent, deep-cutting layoffs all fall under this method. Stedi cutting 30% of employees, and the very deep layoffs of 30% or more at many VC-funded companies fit this bill. These are all painful layoffs. However, as an upside: could they be sufficiently deep to not have to do a second round of layoffs even if the market does not recover in a few months?

2. “Cut shallowly, hope it’s enough, then cut again if it’s not.” Robinhood laid off 9% of staff at the end of April, and now had to lay off another 23% as the business kept declining. Hopin let go 12% of staff in February, and another 29% in July.

I expect more companies which did only small, corrective layoffs at the beginning of the year, gambling that the market will rebound, will have to follow up with a second, even deeper layoff.

When Klarna laid off 10% of staff at the end of May, upon covering these layoffs, I closed with the question:

“I am personally skeptical if a 10% layoff while the company keeps on hiring, is really going to achieve the savings required. (...) Will this cost saving really be enough for Klarna during the next 12-24 months?”

The challenge with layoffs is that no founder or CEO wants to let people go, and it’s hard to fault people for being optimistic about how the market might rebound. However, while one layoff does plenty of damage to the culture of a company, a series of layoffs does far more. If there is a second layoff after the first one – which was supposed to be the only one – who can rule out a third round of redundancies?

3. “Cut early, even though we don’t need to right now.” When Sourcegraph laid off 8% of staff in the end of June, I confirmed the company had ~3+ years of runway. As I wrote in The Scoop #15:

“In what is curious: the company had 3+ years of runway before the layoffs, at their current pace. Sourcegraph has also not touched the $125M Series D that they raised in the summer of 2021. So why did the company make these cuts? It’s to prepare for a potential - but increasingly likely - downturn in the economy that could well impact their business.

I predict we’ll see more companies like Sourcegraph - companies with 3+ years runway - cut non-essential functions and trim middle management to extend their runway to 5+ years, or all the way to getting to profitability.”

Sourcegraph did not need to do those cuts, but did so to prepare for a very bad funding environment, and to extend the runway to 5+ years. In making the cuts, they did not lay off software engineers or line managers; however, they did let go all directors of engineering and product, as well as some non-core teams.

When layoffs are necessary, which strategy is the better one? Cut deep – deeper, possibly, than needed – or minimize the number of people let go, and hope for a rebound?

This is a question every leader needs to answer. However, with no rebound in sight for the markets, cutting deeper might just be – sadly – a more viable strategy than the repeated layoffs we’re seeing at the likes of Robinhood and Hopin.

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This was one out of the nine topics covered in last week’s The Scoop. A lot of what I share in The Scoop is exclusive to this publication, meaning it’s not been covered in any other media outlet before and you’re the first to read about it.

I’m adding an ‘Exclusive’ label to news which features original reporting direct from my sources, as distinct from analysis, opinion and reaction to events. Of course, I also analyze what’s happening in the tech industry, citing other media sources for information and quoting them as I dive into trends I observe. These sections will not carry the ‘Exclusive’ mark.

The full The Scoop edition additionally covers:

1. An uptick in Performance Improvement Plans (PIPs) at Stripe. Is the fintech formerly valued at $95B executing shadow layoffs? I talked with software engineers inside the company and this could be the case. Exclusive.

2. Layoffs at Oracle. Three weeks after I reported on layoffs starting at Oracle, the company has switched up gears in executing layoffs. More details on the organizations hit, and how the layoffs are playing out. Exclusive.

3. Layoffs at Shopify: a follow-up. The layoffs came out of the blue for many people, as just months ago the company was planning to increase compensation across the board. Exclusive.

4. Pay rises at Apple. Given the cooling market, will Apple walk back its promise to raise compensation? I talked with managers at the corporate giant on what to expect. Exclusive.

5. Midyear raises at JP Morgan. In a somewhat unexpected move, the investment bank is upping compensation for many software engineers in the US and UK. Exclusive.

6. The mood inside Google after the warning of ‘productivity concerns.’ Forbes broke news that CEO Sundar Pichai has reportedly told employees he sees concerns with productivity. I went ahead and asked several engineering managers if people even noticed this comment. Spoiler: they barely did. Exclusive.

7. Oncall scoop. Why did LinkedIn stop paying for site reliability engineers (SREs)? Why does Amazon only pay for oncall within its Prime Video unit in the UK? Exclusive.

8. The Ukraine software engineering market. A look at how the tech market is doing, six months into the war.