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A troubling startup layoff trend has emerged

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  • Posted on 05th Aug, 2022 16:33 PM
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We don’t need to tell you about the layoffs that are defining the tech landscape right now, concentrated particularly in late-stage companies that are struggling to raise extension rounds and grow into existing valuations. What we do think is important, though, is focusing on a frustrating trend th…

We don’t need to tell you about the layoffs that are defining the tech landscape right now, concentrated particularly in late-stage companies that are struggling to raise extension rounds and grow into existing valuations. What we do think is important, though, is focusing on a frustrating trend that is emerging between all these headlines: some companies have announced layoff after layoff in quick succession, a double reduction that feels surprising.

For a long-time, I noticed the same startups that conducted layoffs in March 2020 had to scale back again in the 2022 wave. The first wave was in preparation and fear, this wave feels like a pullback after a surge. What confuses me now is seeing startups cut staff now, cite it vaguely due to the macroeconomic environment, and then do the same thing a few weeks later with the same reasoning.

Some nuance

In most cases, a follow-up layoff has looked larger than prior cuts, telling us that the company didn’t go far enough in its first reorganization.

It’s also worth nothing that the cadence of net new layoff events is falling, ever so slightly. According to layoff tracker layoffs.fyi, there were 150 new layoff events that occurred in July, down nearly 18% from the month prior.

According to Nolan Church, the CEO and co-founder of fractional work platform Continuum, there are a few reasons that a founder may have to do two rounds of layoffs in quick succession: business getting worse, poor forecasting, or both. He also added that one factor could be that “leadership didn’t have the courage of awareness to cut deep” when it comes to people and projects in the first round.

Continuum recently raised a $12 million Series A round to scale a suite of fractional work tools, including a service that helps startups conduct more humane. The company connects a client in need of support when conducting layoffs to a seasoned executive for anything from day-of support in sharing the news to high-level advice. He hasn’t seen any double rounds of layoffs among clients, which he attributes to the fact that his execs encourage founders “to cut once and cut deep.”

“Layoffs two weeks apart are inexcusable. Leadership, likely the CEO, drastically miscalculated,” Church said. “Layoffs two years apart don’t surprise me. Typically, CEOs of early-stage companies are optimized for two to three years of runway. The first layoff was when they initially shifted direction. As part of that event, they likely shifted course and made a new bet. The 2nd layoff is caused by that bet not paying off.”

All this in mind, according to data from layoffs.fyi as well as TechCrunch’s own reporting, here are some of the companies that have conducted at least two rounds of layoffs within months, and sometimes weeks of each other:

On Deck

On Deck, a tech company that connects founders to each other, capital and advice, has conducted another round of layoffs just three months after laying off a quarter of its staff. Sources say that more than 100 people were impacted by the workforce reduction, accounting for half of the entire staff, while the company — which confirmed the layoff to TechCrunch over e-mail — said that 73 full-time employees were laid off. No executives were impacted.

The startup’s second layoff comes with a more specific strategic plan for what’s next, while its first lay off was largely attributed to changes in the capital and accelerator markets. This time, On Deck went deeper: it has sunsetted several communities and is spinning off its career advancement arm into a separate startup.

It may be because of a more pressing need to extend runway. Sources estimated that the first round of layoffs occurred because On Deck only had nine months of runway left. Now, On Deck’s co-founders Erik Torenberg and and David Booth say that the company has more than three years of runway.

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