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Lack of VC funding forces startups to think lean

Sarah K. White | July 13, 2016
A steady drop in venture capitalist funding has forced startups to develop new strategies to evolve their workforce -- that includes layoffs, budget cuts and a new definition of growth.

Startups are typically at the mercy of venture capitalist funding, but as of the first quarter of 2016, VCs are pulling back on how quickly they hand over that much-needed funding. According to a report from Dow Jones VentureSource, funding for U.S. startups fell 25 percent from the previous quarter -- marking the largest quarterly decline since the dot-com bust in 2000.

It's bad news for startups. As these small companies feel the pressure, they're forced to budget cuts, layoffs and buy-outs as a way to stay afloat amid limited funding. Startups will need to get strategic, says Al Stevenson, a principal with WinterWyman Executive Search's Technology practice.

And it's not just small startups that are experiencing cuts -- startups that have seen major growth, like Dropbox, are cutting corners and creating a mentality of company-wide "thoughtful spending," according to Business Insider. Businesses all across Silicon Valley are looking at ways to remain profitable, while providing reasonable perks for employees.

"Companies need to find aggressive ways to cut costs and extend their runway. That includes layoffs, consolidation of products and services, shuttering operations, buy-outs, mergers, and going to debt financing or other less desirable forms of financing," says Stevenson.

Be prepared for staff reductions

No one wants layoffs, but for struggling startups, it's an unfortunate reality. Stevenson says businesses should expect to be prepared for staff cuts and layoffs -- even if it's just a "last resort" plan. Startups all across California are laying off employees. Business Insider reports that layoffs have more than doubled in the Bay Area in the past year. Companies like TiVo, Yahoo, Intuit, Twitter and HP are just a few of the tech companies that reported layoffs in the last fiscal year.

Stevenson points to a trend where startups are taking on a "mean and lean" approach and making drastic cuts to minimize company spending. And, unfortunately, staff is one area that often takes one of the biggest hits.

"To start, companies should identify their business objectives and then determine how to adjust their hiring process and current workforce. From there, companies may need to look at layoffs, combining roles and other restructuring efforts," he says.

As with any new business plan, you'll want to head into restructuring with a firm plan in place, and remain open with your employees. It's also a way to quickly gauge which employees are in it for the long haul, and which ones will look for a way out of the company.


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