Layoffs: Learnings from the toughest moment in our history at Nova

Yes, in late 2022 we also had to do a major round of layoffs. This is how we did it and what we learned.

Hey, we are Ramón Rodrigá?ez and Andrea Marino, Co-Founders at Nova, the Global Top Talent Network.

Welcome to Talent First, our newsletter where those who believe that talent is the most important resource in the economy get together.

Every week we cover a new topic related to attracting, hiring, developing, and retaining talent, as well as the learnings from our journey building Nova.

Summary:

• Our learnings from having to lay off 1/3 of our team. Like many other startups and tech companies, we had grown too big for our revenues in 2022. We thus had to go over the most painful experience as an entrepreneur: having to lay off people to save our company. We will explain how we went about it and what we learned.
• Top Talent Report 2024. We will be presenting the 2024 edition of the report where we compile the latest salaries and trends around top talent. If you are a founder or work in HR, we look forward to hosting you at one of our events in Spain, Italy, or Sweden. Spots are limited, apply below!

1. Layoffs: Learnings from the toughest moment in our history at Nova

More than 1 year after finalizing our layoffs at Nova, we believe it’s time to reflect on it and share it with our Talent First readers, so it may help other entrepreneurs not make the same mistakes we made and be prepared for the toughest experience one can have as an entrepreneur.

Over time, anyone in a management role will be faced with the challenge of having to fire an employee because of a lack of fit or performance. Although this is challenging at first, as you do a few, you learn how to do them in the most human way possible, you feel less bad about it and it becomes easier as you acknowledge that those layoffs are for the best of the rest of the team and, sometimes, even for the person being laid off, as they might simply be a great talent who can shine in a different type of role or organization.

However, facing a big round of layoffs because of a company’s need for survival is a whole other thing. In this case, you are firing people who do NOT deserve it and who are typically not to blame for the problems that provoked the layoff. Major layoffs like the one we experienced at Nova are more often than not the fault of company leaders and investors who did not design the right strategy or did not execute it correctly. They may also be due to some external factor that nobody can control like Covid was for many businesses.

However, it’s always the employees paying a high price for these through their jobs. And that is tough. Let’s now dive deeper to see:

1. What were the causes of the layoffs at Nova
2. How did we approach those layoffs
3. And what did we learn from the process and mistakes we made

1.1 What brought us to having to lay off people?

In our case, the causes of the round of layoffs were a combination of our bad decisions as founders and a failed investment round which did not materialize for reasons we could not control.

By early 2022 we were around 35 people in the Nova team and we had our first recurrent B2B revenue from a platform we had tested in no-code (Notion) for a few months. We had grown by 80% in 2021 vs 2020 and kept a very big momentum on the revenues, so it was good timing for us to consider raising the next round as we were also starting to run out of money.

As you might remember, Q4 2021 - Q1 2022 was probably the peak of the VC bubble post-pandemic, with hundreds of startups raising crazy amounts of capital at ridiculous valuations. In that context, we could not help to compare ourselves against other companies doing less revenues (we were already past the 1M€ run rate) and seeming to have less defensible businesses, so we went to fundraise with confidence.

After 3 months, we got letters of intent from institutional investors, just 10 days before Ramon’s wedding on April 30th. The deal seemed perfect, as the round was going to be led by an industrial player with lots of experience in our sector and the same vision who wanted to buy the company in ~5 years, and we got a VC with more experience in B2B SaaS to put some money as a follower.

Andrea took the reigns of the entire company for a few weeks after the wedding and, as Ramon came back, we signed the Term Sheet (“TS”) and stopped fundraising to concentrate back on the business and go through the Due Diligence (“DD”). This was our first big mistake.

The DD was thorough and slow, so it took almost the entire summer, and we had to move the closing to September 30th. Since we were planning a big international expansion and to accelerate product development features starting in Q4, we doubled down on hiring and brought new people on board in different roles (tech, community, our first-ever HR employee, etc.). This was another big mistake.

But one morning, on September 17th, 2022, when Ramon was at the hospital with his wife checking how his baby and the pregnancy were going, the deal exploded for reasons we cannot unfortunately explain here but which were completely out of our control. For the next 2 months, we tried to save the deal as well as we could, but nothing worked. Now, as we have spoken with other founders, we have come to realize that it is quite frequent to have rounds canceled even with TS signed and DD done. Huge learning.

Thus, in December 2022, we faced Nova’s death as we ran out of cash. Here we learned that companies do not die because of losses or negative EBITDA: it’s cash (or lack of it actually) that kills you.

We tried coming back to VCs in Q4, but tech layoffs were at their peak and the VC market had shut down in the last 6 months as tech stocks plummeted. We had also lost a lot of our previous traction (less founders’ time and focus in the business, uncertainty growing in the teams as the round kept being pushed away, slower hiring market, etc.) which made our company not attractive any longer for VCs.

Finally, thanks to the support of a few great Business Angels and some money from the institutional investor who had left us “hanging”, we saved the company and changed focus completely towards profitability and reducing cash burn. We changed our operating model looking for efficiencies, and agreed with the board that it was time to lay off some people to maximize the runway the investment we had received would give us.

1.2 How we went about laying off people

With this change of focus and the new operating model, we realized that:

1. We were not going to open any new markets. Thus, some of the HQ staff was not needed and we needed to go back to paying attention to the 3 markets we were already in.
2. We needed to remove all non-core activities.
3. We could not afford such a big tech team and needed to reduce our product investments.

With these in mind, we did a first round of layoffs in the last week of December 2022. We tried to save as many people as we could and created a 2023 budget which, with today’s eyes, was way too optimistic considering the slower hiring market and the fact that many people had to change roles (for instance, we moved many people from delivery to sales, but those changes never bring revenues in less than 3-6 months).

We had to let go at least 8 people and maybe 2 more, but we were hopeful to get an investor to be able to keep as many. After speaking with the Management Team and with each one affected (8) and potentially affected (2) individually, following our transparency values, we explained in the all-hands meeting who were the 8 people leaving and the 2 people that might have to leave if the investor did not join.

That was a terrible mistake, as everyone was suddenly worried about the 2 people on the “edge” of being fired, which made their time awaiting news quite agonizing. Big mistake to have explained that in public, letting them know in private was already more than enough.

We ended up firing 10 people out of the ~60 FTEs we had reached in December 2023, starting with some redundant global roles (such as a couple of engineers or the HR person which was not needed anymore as we did not plan to hire in the near term). We also had to fire the 2 Country Managers of Spain and Sweden, who were less needed as we both could get back to the local operations without any new countries to open.

In any case, trying to save as many people as possible and doing an “optimistic budget” was yet another big mistake as we soon discovered: Q1 results were far from budget and Q2 did not seem to be much better, so we ended up needing to do a second round of layoffs of another 10 people, moving down to ~40 FTEs which have remained more or less stable since.

With a lighter team, the new membership revenue stream, and an improved operating model, we finally reached EBITDA positive in 2023 and put an end to the darkest period of our history as a company.

1.3 Summary of our learnings and some tips for massive layoffs

All in all, these are the 4 key learnings from this experience:

1. Make layoffs way tougher than you believe it’s necessary. When laying off people to reduce costs, you have to go down to the bone until it hurts so much that you don’t even know how the company will keep running. The mistake of being hopeful and laying off too few people is something that we have heard happened to many entrepreneurs, and it comes at a very high price: you then need to do a second round of layoffs soon after, which is even more painful for everyone as the feeling of sadness stays in the team for way longer and the uncertainty level increases dramatically.
2. Understand that role changes take time. It’s easy to be hopeful with someone changing roles and believe that will be productive soon, but it’s rarely the case. Do not use role changes to save jobs or do it thinking that people will take 6 months to be productive.
3. Be extra clear with communications. You should start with the management team, continue with the individuals affected, and finalize in the all-hands with an extra clear message. Never communicate in public things that are “maybe” happening.
4. Fundraising does not end until you get the money in the bank. It’s a classic rookie mistake to believe that signing the Term Sheet is enough. Or passing the Due Diligence. That’s not the case: many deals get lost with signed Term Sheets and passed DDs. Do not stop fundraising, do not consider the deal done and, by all means, do not start hiring until you have the money in the bank.

2. Top Talent Report 2024

We will be soon hosting our first events for HR professionals and founders who want to learn more about salaries, preferences, and trends in top talent. If you have one of these profiles, apply for a spot below for one of our events:

• Spanish (Madrid, June 20th, 2024, 19h00)
• Swedish (Online, June 14th, 2024, 12h00)
• Italian (will be announced soon)

Thanks for reading Talent First. If you liked this issue, don't forget to hit ??

We would be grateful if you?share it by email or social media?with other people who might like it or who might be looking to hire top talent.