How to maintain company culture during restructuring

More than 240,000 workers at US-based tech companies large and small were laid off in 2023, according to TechCrunch, and the trend is continuing into 2024.

Closer to home with investment capital more difficult to obtain, a number of New Zealand startups have had to pull back on growth plans, lay off workers, and conserve the runway they have.

There have been a few media headlines around companies forced to cut staff numbers but remarkably little comment from those involved.  Restructuring carries a stigma with it that means Kiwi startup founders often don’t see any value in talking publicly about the process.

Greg Cross, CEO of Kiwi AI company Soul Machines, says there’s inevitably a sense of failure when you have to make the difficult decision to lay off staff and failure in New Zealand business is defined as something bad rather than a learning experience.

In July last year Soul Machines was among the multitude of tech companies that laid off staff. Cross won’t disclose how many were affected from its then 230 staff worldwide, 100 of which were based in New Zealand. Founded in 2016 by Cross, a serial tech entrepreneur, and Academy Award winner and chief science officer Mark Sagar, Soul Machines uses artificial intelligence to create digital humans – from “celebrity twins” to customer service agents. 

“I’ve been through these cycles in my career a number of times and I can tell you it never gets easier, having to make decisions around staff, having to communicate that and work through it with the individuals directly impacted and the individuals that are carrying on as you move forward,” Cross says.

“In my personal experience, people respect you more if you treat them like people and communicate with them as you work through a difficult process and you acknowledge that it is difficult for everybody.”

Soul Machines has been funded by international VCs to the tune of around US$135 million to date. It, like many other VC-funded companies, has come off a period of raising fresh growth capital every year or so to stretching out its runway to every two to three years.

“That means you face a very different approach to managing your business as you manage through these times but it becomes all about the people,” Cross says.” It’s the respect that you treat people when you go through difficult times that becomes the market of the culture and the leadership.”

Last year’s AI Gold Rush, as Cross calls it, has also had a massive effect on Soul Machines’ go-to-market model and it has had to reshape its business accordingly for the different skillsets needed to deliver to consumers.

Rather than just being a traditional enterprise direct sales organisation, Soul Machines now offers a freemium version of its product to consumers.

“The skills and the execution required to deliver that is very different so for a startup it’s not just about managing your cash flow and your burn rate, it’s also about navigating opportunities out there which literally have dramatically changed over the course of the past 12 months”.

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Communication key

“In the world of tech startups not everything works out exactly the way you plan it and, in fact, most of the time it doesn’t work out the way you think it’s going to so it comes down to the way you work with your people as you go through the process,” Cross says.

Human relations experts agree communication and transparency is key.

Kalyn Ponti, CEO of HR services agency Humankind, says times of adversity or challenging moments are really opportunities to demonstrate a company’s integrity.

“This is the perfect opportunity to really show where your values lie and being really clear you have to make changes. The context has completely changed to a couple of years ago so organisations need to stop and pause and think about what functions and roles they need to deliver on that and then set up their structure, their roles, and how the team works together, in order to deliver on that.”

Humankind has prepared a people-centred restructure checklist that starts with the “why”.  Explain to all staff really clearly what the organisation needs to look like to be sustainable as a way to help maintain your culture once the restructuring process has been completed. It becomes all about trust, Ponti says.

“Because the next time you have to make a hard call or you’re asking the team for something or if you’re facing this again, if you deal with it with integrity and good, sound decision-making which is really essential, the team respect that.”

Around half of clients that come to Humankind wanting help with removing costs haven’t thought through the new strategy they will need and what roles and functions they need to deliver on the new revenue targets, Ponti says.

There are obviously legal steps to go through when restructuring, which vary in different countries which you need to take into consideration when you’re operating globally.

“There’s kind of the correct way based off a process and then there’s doing it well,” Ponti says.

Where possible, it’s good to get staff input on the process and you’re legally required to get feedback from those impacted. 

“Allowing people to feed into the proposed structure gives people a voice and also I think, more importantly, it allows you to explore options that leaders may not have considered and just really maintains engagement throughout the process,” she says.

Going the extra mile

Mary-Anne Merriott, who leads the recruitment and HR services arm of the Digital Skills Agency, says she’s observed three ways of handling restructuring during her career.

These include the transactional piece which gets a short-term commercial result and the process over and done with quickly but ignores the human side of things. Another is where people try to focus more on the human side of things and do a bit more than just what the legalities require but they are still a bit uncertain about how to fully do that. And then there is a third level that goes way beyond the basics and organisations actively try to support their people, while still sticking to the commercial plan and the legal ins and outs.

“That requires some very big thinking,” Merriott says. “But that’s where you see better results with culture and less attrition from the people who are remaining and are not trying to leave what they might see as a sinking ship. You see more trust retained by the people who are staying.”

Examples of two extremes include social media platform Twitter  (now known as X since Eion Musk bought it and rebranded it last year) and software accounting platform Xero.

When it was still Twitter, the US company would spring redundancies on people, doing things like shutting people out of their computers without warning before people even knew they were being exited, Merriott says. “All of those really horrible, confrontational things that ignore any human aspects of the equation.”

The other side of the picture was how Xero handled the shedding of 14% of its workforce, first announced in March 2023 by CEO Sukhinder Singh Cassidy. In a company-wide statement also made public, Singh Cassidy said the restructuring was needed to position the business for growth.

When reporting its half-year results in November last year, the company confirmed its workforce had fallen to 4,242 from 4,915 with redundancy costs totalling $31 million. 

Merriott, who’s had no involvement with the company, says Xero’s handling of the restructuring was the best example she’s seen of a company going beyond the basics. 

You only have to look at LinkedIn under the hashtags Hire a Xero and Xero layoffs, she says.

“They were really upfront at the beginning and what I noticed them doing was trying to throw as much help as they could at people. They told them this is how we are going to help you and they really did seem to try to and go above and beyond – offering things like more redundancy pay [12 weeks minimum] than they needed to.” 

“Xero put up a spreadsheet on Google they made public saying ‘hey, these are all the cool people in our team with their LinkedIn profiles who were looking for a new job and they had a big promotional campaign going on around hiring these people who were really cool but unfortunately had to be let go.”

However, when the Xero redundancies were first announced 1News reported leaked internal emails and messages showed several staff expressed confusion, after being called into meetings, about whether their roles were being terminated immediately. 

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The go forward

One of the biggest challenges for leaders heading a restructuring is balancing having empathy for the people who are proposed to be impacted while also providing confidence and positivity for those remaining, Ponti says.

“The timing is important – providing people with a reasonable time to give feedback but also not drawing the process out for too long. While you’re meeting with people who are proposed to be impacted you also want to be meeting separately with people who aren’t so you can be continually supporting them with confidence and to focus on the future,” she says.

It can be appropriate to ask people leaving what they want in terms of a send-off to acknowledge their contribution.

For those remaining, setting short-term and long-term milestones can give people back a sense of control and something to celebrate as those are achieved, Ponti says.

“We’re also really big fans of it doesn’t all need to sit with the leaders. There are things that are good for leaders to plan but also to go out and ask trusted employees and members of the team what they are needing right now.”

It’s also important to spend time with the slimmed-down team on updating ways of working because the team shapes will look different with less or new roles.  A review 12 weeks on can also help see how the new structure is working and what needs to be adjusted, she says.

The high level of communication needs to continue once people have exited the business, Merriott says.

“You’re entering a new world of whatever new structure you have created and if they’re part of that they need to understand what does that look like, where are we going, what’s the direction, and how are you going to support me? How do I know you’re not going to do this again in three months and my job is not going to be in danger. “

The more leaders can involve people in the new structure the better so they feel invested, engaged and that their voice is being heard, she says.

The other thing is for leaders to get their own support during the process.

“The manager delivering it is also a human being and is going through a really difficult time trying to do this and it’s almost never a good thing for them to be doing,” she says.

Leaders should seek feedback on how they handled those tough conversations and how they could improve on that with the next person. 

“How you’re going to put your ego aside and be humble and support your team is really important to making that work as best it can,” Merriott says.