Business Culture; Is It Okay to Layoff Employees?

Valuations are under pressure in Startup Land.  The fissures in the world markets and the .25 increase in interest rates caused a bullwhip effect in valuations.  It seems everyone woke up at once.  There has been a lot written about the crush in valuation, but not a lot written about what you do in response.

I totally love this post by Heidi Roizen.

If I were a startup CEO, I’d print it out and put it on my bathroom mirror.  I’d read it every day.   There is so much good advice in it.

In Behavioral Economics, there is a concept called “anchoring”.  People anchor around numbers.  That’s why it’s better to put forth the first number in a negotiation.  Sometimes both parties anchor on it.  It’s why you don’t see homes listed in the MLS without prices.

Valuations are the same.  Suppose you had a term sheet for a valuation of X.  You start to anchor on that number.  Or, you hear about startup XYZ raising money at Valuation X and you are doing as well as that startup.  You might anchor your valuation to their valuation.

Heidi throws cold water on valuation:

Stop clinging to your (or anyone else’s) valuation:  You know what somebody else’s fundraise metrics are to you?  Irrelevant.  You know what your own last round post was?  Irrelevant. Yes, I know, not legally, because of those pesky rights and preferences.  But emotionally, trust me, it is irrelevant now.  We even have a name for this – valuation nostalgia.

I also love this thought about getting rid of employees.

Stop worrying about morale:  Yes, you heard me right.  I can’t tell you how many board meetings I’ve been in where the CEO is anguished over the impacts on morale that cost cutting or layoffs will bring about.

You know what hurts morale even more than cost- cutting and layoffs?  Going out of business.

It’s an amazingly frank post with tons of great advice.  As my friend Bob Geras says, and Heidi reiterates, the way to stay in business is to make more money than you spend.

The stock market has rallied the past three days.  People are breathing a sigh of relief.  Guess what? They call that a relief rally in bear markets.  We haven’t seen the bottom yet.  Buckle up your chinstraps and get prepared.  The tide is still going out.