Taking the Hard Calls

In my previous post, I spoke about how being cash positive can become a double-edged sword for businesses during crisis situations and how the lockdowns meant low cash flows, which in turn drastically reduced our runway. In this blog, I wanted to share what we did to deal with this situation and the aftermath of it.

Once we decided to reset costs to a worst-case scenario, the first thing was to create a plan around it. We got help from Saiki at xto10x to put together a worst-case plan. Even after delaying the usual bonus pay-outs and vendor payments, we needed to cut costs by a large percentage to bring our cash burn to a point where we could extend the runway to 3-4 quarters with our existing cash reserves. We had three options :

1. Take an outsized salary cut – ask vendors to take an outsized cut, and wait for things to recover
2. Take a sustainable ~25% salary cut, put a large percentage of the team on furlough/ leave without pay and take them back when things recovered
3. Take the hard calls now – take salary cuts to a level that is reversible if business recovered to 75%+ levels, and get the rest of the savings from letting go of employees and vendors you couldn’t afford.

1.  Our higher exposure to offline retail and to markets like India and the Middle East which weren’t in the pink of health even before Covid-19 hit. Early recovery in these markets seemed highly unlikely.
2.  If we had gone with Option 1 or 2, this delayed recovery would have resulted in a lot of employees going without pay or having deep pay cuts for an extended period of time without any clarity on when things will get back to normal.
3.   If we choose Option 3 and retrenched early, it would give our affected team members the highest chance to get placed in other companies and access to any remaining jobs, before other companies reacted and started laying off. I had a hunch that we could leverage the goodwill Capillary had in the B2B SaaS ecosystem and run a successful outplacement process to help the affected folks.

Luckily for us, we had the support of our existing investors Warburg Pincus, Sequoia Capital, Avataar Venture Partners, Qualcomm Ventures along with some of our early angels Venkat Tadanki and Steffen Naumann. They set aside all other fund life considerations and decided to back us up with an interim funding round – all committed in 1 week. Our Venture debt backers Innoven also agreed to our request to reduce our principal repayments by half for the next few months, until things recovered. I must say we have been very blessed on the investor front.

With a 17% average salary cut (no cuts for the entry salary tier, 15% for the mid-tier, 25% for the management tier and me going on no pay) and with a low double-digit percentage of team retrenchment, we would be able to tide through a worst-case scenario and have money for at least the next 12-18 months. We decided to act and took the cuts on March 27th.

The Retrenchment

Given the lockdown, we had to do the retrenching remotely through video calls. There was a lot playing on our minds. Most of the impacted folks would have been confined to their homes, nowhere to vent, no friends to meet, and face the discomfort of telling their parents or families that they were let go. We had to let go of quite a few folks – some of them who have been with us for more than 10 years  – and we had to do this over a video call during a lockdown.

I would not have signed up to be a founder or starting up if I had the foreknowledge of a day where I’ll have to do something like this. Those four weeks have been the hardest of my life, and I have woken up with nightmares on several days during that month. We decided to do this in the most humane way possible and leave no stone unturned in supporting the affected folks. Here is what we did :

• 1. For the employees being retrenched,  we decided to make sure they would be financially supported at least in the near term.  We paid the annual bonus,  encashed leaves and gave a minimum notice of 2 months, even for contractors. The average employee got a 4-month notice pay and folks who were with us longer got 7 months of pay. We actually didn’t have the cash so we decided to pay the notice as 4 months of salary over 4 months. Some of the folks we retained complained that the folks being let go were being treated better!
  2. We extended insurance till the end of H1 (September for everyone) and set aside INR 1Cr for any medical emergencies which the insurance might not fully cover.
  3. We brought on board YourDOST to coach the 30 teams that were going to run the exit process. The script for the exit meeting, the wording and the FAQs were closely scrutinized by them to make sure there was no word which was used that would make it harder for the impacted folks than it already was. YourDOST further trained the 30 teams on how to look for any clues of emotional vulnerability. We created a WhatsApp group where a panel member could send out a message if a conversation wasn’t going as expected and we would have the YourDOST team and someone from the senior management reach out to the employee immediately. The respective team manager would then be asked to keep in constant touch with these employees for the next few weeks, we also fast-tracked their outplacement.
  4. We further retained YourDOST to call up each impacted employee at least 2 – 3 times over the next few weeks. The impacted employees could reach out to the YourDOST team and get counselling sessions in case they were feeling low. A lot of impacted employees later wrote back to us acknowledging the support they got from YourDOST. I think the YourDOST team did a fantastic job over the next few weeks and I am very proud of being an angel in the firm. I am sure they have positively impacted the lives of many people.

  I must thank all the panel members for their patience and sensitivity in handling the retrenchment; it was a long dark day and everyone gave everything they had to make the entire process as humane as possible. 

• We then had the hard task of running an outplacement service. We chose 6 folks to form a dedicated team to run an outplacement service. Every leadership team member contributed by getting companies to participate. I personally wrote to over 50 founders, basically anyone who has ever reached out for advice on participating in the outplacement.
• Although I wouldn’t want to name anyone here, I am very thankful to all the support I got from the startup ecosystem and other founders who helped us out by hiring our folks. The Leadership Team and the Outplacement Team probably spent the next 8 weeks and weekends doing all they could to make this project successful. It was nothing less than running a well-oiled campus placement cell. We got 102 companies to participate, sourced 600+ open positions, and enabled over 2500 interviews.
• We matched profiles and sent CVs for 99% of impacted employees; 80% of the folks had at least one interview opportunity and more than 60% had at least two interview opportunities, a few had 35 interview opportunities. But it’s been tough, and there has been less than 10% interview-to-job offer conversion. And quite a few good folks are yet to be placed. A large percentage of the openings froze halfway, where the companies would suddenly stop hiring at the last stage of the process, many even at the salary negotiation stage.

  By end-April – mid-May, new openings/ pace of hiring really slowed down. Thankfully, we had a head start, and as of mid-June, more than 60% of the impacted folks have already joined new companies. In hindsight, I think our hunch of moving early definitely worked out. For folks who are yet to be placed, we have offered to fund 75% of the fee for any online upskilling courses they want to take up.

  This entire episode took an emotional toll on all of us. It hit us especially hard since we have always strived to nurture a great culture at Capillary – one that is as employee-focussed as it is customer-focussed. In times like these, it’s vital to be humane in your dealings, over-communicate, and do the right thing for everyone involved with your company. I have written more on this in the next post – Doing the Right Thing for all Stakeholders

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Aneesh Reddy is the CEO and Co-Founder of Capillary Technologies. An alumnus of IIT-Kharagpur, Aneesh has been recognized a "Forty Under 40" leader by Fortune Magazine and the Economic Times. He is an active contributor to the start-up ecosystem. He's also an avid trekker, long-distance runner and traveler.