John S. Kim
Companies are clamping down on budgets, but startup CEOs shouldn’t assume that costs will go down just because it was decided they need to. They need to go in with eyes wide open.
The realities of execution are far different than simply slashing the bottom 20% performers, especially when even the most limited international operations are involved. The international element looms large, because it affects nearly every tech company today.
The pandemic accelerated the development of a global workforce by virtually eliminating geographic boundaries for businesses; remote work became the norm. This enabled companies across a wide range of industries to fully tap into and secure talent all over the world, often at a much lower cost than in Silicon Valley.
Hiring international employees and contractors is not a new phenomenon, but with labor shortages in several industries and visa struggles with tech workers in the U.S., the practice has become even more common. Customer service is often outsourced to India; manufacturing to China or Latin America; maybe developers are in Europe or Korea.
Customers and partners, and thus the teams to serve them, come from all over the world. And different cultural norms and labor laws make everything from layoffs to everyday communication infinitely more complicated when navigating a potential recession.
I’ve exited two companies with international operations, one through a previous downturn, and here are a few things I’ve learned along the way:
Communication is about providing context
Communication is an essential component of running a healthy business, but it’s especially important in the current climate. Some regions are in a totally different place economically, and there may be a bit of a disconnect in understanding how unstable the U.S. economy is right now.
Business might be booming where employees are located, which may make it harder for them to comprehend things like hiring freezes and budget cuts. So not only does a company have a responsibility to keep employees informed about what’s going on, they must do it in a way that will best resonate with their respective audiences.
Each region has a different business culture. For example, South Korea has not experienced layoffs/RIFs except in the most extreme circumstances. If you look up the word “layoff” in Korean media, the search results are mostly about U.S. companies or some conglomerates shutting down or selling a business. Korean startups rarely do layoffs unless they are going out of business. A startup at scale laying off 10% to 20% of its workforce is not only a shock to the company, it could be a shocker to the industry as a whole. It’s just not done there.
Getting the context and messaging right around potential layoffs is vital in regions where the culture differs greatly from the U.S. Companies must ensure open communication and transparency. They also need to plan communications differently and with more care than in the U.S. to preserve goodwill — not just with a few workers but with the whole organization and its ecosystem of customers and partners.
After all, no one is going to want to do business with you if your company violated cultural norms by letting workers go without respecting their needs. Losing revenue and connections will further harm your business over the long term.
Additionally, it’s important to realize that in many parts of the world, labor laws practically do not allow firings or layoffs. In countries such as France, Japan and Brazil, companies may have to prove in court that there was no other way forward financially but to terminate an employee. In some cases, they must provide social support in addition to long-term severance.
In short, laying off workers in some countries goes so far against the cultural grain that it can be far more expensive than other budgetary options. In some cases, layoffs can’t be avoided, but I would encourage you to think long and hard before going down this road with international teams if you can help it.
Regardless, it is imperative that you understand the parameters and nuances of each geography as you communicate with team members. If they understand the pressures the business is facing, they will find new, socially acceptable ways to cut costs that you’ve never even thought of.
While it’s easy to say you’re just going to trim the workforce and that will be that, taking the time to work with employees on other solutions is usually more equitable and financially beneficial to the company.
Managing time zones is harder in challenging times
Many U.S. startups, even when they have international offices, usually operate in a centralized manner. A majority of the revenue usually comes from U.S. operations, and a significant portion of the headcount may reside in the U.S., so the company tends to communicate according to its own time zone.
But more than ever before, startups are being built globally or remote-first, so how we collaborate and communicate is changing rapidly. Time zones start to matter more.
In times of stress and rapid changes, startup leaders need to assume that word of any big changes will travel asynchronously. Such news spreads very quickly to all corners. You need to create rigorous documents and FAQs first, then update corporate news over synchronous channels.
You should assume some points may be taken out of context across regions, but do your best to prepare for questions anyway. It is also wise to communicate through cascading messages so that every layer of people managers is equipped to handle local and small group communications on behalf of the leadership.
Ambiguity leads to anxiety, and anxiety leads to negativity
It is natural for people to respond negatively to tough news about the company’s situation or decisions. They may hunker down or go into fight-or-flight mode before they get a chance to step back and regain perspective.
You have to assume employees will feel heightened anxiety and will respond more negatively during these times. Leaders need to recognize them as human beings, be patient and continue to provide and reinforce clarity on the situation through multiple channels (written documents, team calls, stand ups and AMAs, emails, Slack, etc.) to continue to drive down any ambiguity.
Striking a balance between simplifying your message and providing enough details to reduce ambiguity is always a challenge, especially as your headcount grows. Have a “strike zone” in mind, and rely on and equip people managers with documents and talking points so they can tailor the message appropriately and address questions locally.
There are hard choices to be made in the days ahead. If you keep these points in mind, however, you can (hopefully) minimize stress on your employees around the globe while navigating market instability.
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