पाठशाला Pathshala · दल Dal, The team · Lesson 26 · Scale

Layoffs done with care

A reduction is the hardest people decision a founder makes. How to size it once, choose roles before names, meet Indian law, pay a package people remember and run the day so those who stay still trust you.

Pathshala, The Founder Library · 11 October 2026 · 7 min read

A single figure walking through a dim and empty open-plan office. — Photograph: cottonbro studio · Pexels

A layoff is the moment a company finds out what its founders are like. Done badly it costs the people who leave their dignity and the people who stay their trust, and the second loss is the one that sinks companies. Done with care it is still painful, but the company that remains believes the plan and believes the people running it.

This lesson is for a reduction forced by the plan, not for individual performance, which the [firing lesson](/library/firing-fast-and-fairly-in-india) covers. It sets out how to size the cut, how to choose who goes, what Indian law requires, what a generous package looks like, how to run the day and how to look after the people who stay.

Name the reason honestly

Ben Horowitz’s first rule is to be clear about why it is happening: the company failed to hit its plan. It is not a performance clean-up, and dressing it up as one insults the people leaving and teaches the people staying that the founders will not tell them the truth. Stripe’s chief executive Patrick Collison wrote in November 2022, when about fourteen per cent of the company was let go, that the leadership had overhired for the world it was in and grown operating costs too quickly. That sentence is what a reason looks like: specific, owned by the people who made the decision, and not about the people paying for it.

Write the reason in one paragraph before anything else. If the founders cannot write it, they have not decided whether this is a cost problem, a strategy problem or a market problem, and the size of the cut depends on which.

Size the cut once

The worst layoff is the second one. A company that cuts ten per cent in March and another fifteen in July has had two layoffs, and nobody who stays believes there will not be a third. Size the reduction from the plan, not from what feels bearable: decide the runway the company needs to reach its next milestone with a margin, work out the burn that delivers it, and cut to that burn in one move. The [runway lesson](/library/runway-how-many-months-you-really-have) and the [thirteen-week forecast](/library/thirteen-week-cash-forecast) give the inputs.

A worked case. A company in Gurugram has ₹15 crore in the bank and burns ₹1.2 crore a month, seventy per cent of it on people, so it has twelve and a half months. Cutting thirty per cent of people cost and a fifth of everything else, with three months’ severance, costs about ₹76 lakh once and lowers burn to about ₹88 lakh a month. Runway rises to a little over sixteen months, and the severance is earned back in under two and a half. If the plan needs twenty-four months, this cut is not enough, and the time to learn that is now, not in July. Set your own numbers below.

Two things the figure shows that founders tend to miss. Severance is paid up front, so a cut does not improve runway as much as the monthly saving suggests; at short runways it can barely improve it at all. And cutting people alone is rarely the whole answer: offices, tools, agencies and contractors should go first or at the same time, because asking people to leave while the company keeps paying for things nobody uses is the fastest way to lose the people who stay.

Choose roles, then names

Decide which work the company will stop doing, then which roles that removes, and only then which people. Write the criteria down: the products or markets being closed, the teams being merged, the layers being removed. A list built from names first is a list built from who annoyed whom, and it will be read that way. Have a second leader and the head of people review the list against the criteria, check it for patterns by gender, age, tenure and leave status that the criteria do not explain, and record the reason for every name.

What Indian law requires

The rules depend on who is a worker. Under the Industrial Relations Code the definition includes people in supervisory roles earning up to ₹18,000 a month, as Lakshmikumaran & Sridharan summarise; most managers and senior staff at a startup sit outside it and are owed what their contracts and the company’s policies say. A worker with at least a year of continuous service who is retrenched is owed one month’s notice or wages in lieu and fifteen days’ wages for every completed year of service, with a part year of six months or more counting as a year. The code adds a re-skilling fund: the employer contributes fifteen days’ wages per retrenched worker, paid to the worker within forty-five days, on top of retrenchment compensation.

Three further rules. Retrenchment generally follows last come, first go within a category of workers, unless the employer records reasons for another order, and retrenched workers have a preference if the company hires for the same roles again. Prior government permission is needed only for factories, mines and plantations with 300 or more workers, up from 100. And everyone leaving is owed wages, leave encashment and gratuity where due; the firing lesson has those dues and the final settlement. The L&S retrenchment calculator shows the arithmetic. Rules checked 11 October 2026; take advice on your own facts.

The package people remember

The statutory minimum is a floor, and for most startup employees a low one. Airbnb’s letter of May 2020, when nearly 1,900 of its 7,500 employees left, set a standard many companies since have measured themselves against: fourteen weeks of base pay plus a week for every year of tenure in the United States, the one-year equity cliff waived for everyone hired in the last year, twelve months of health cover, laptops kept and a public directory of departing employees for recruiters. Stripe’s package two years later was fourteen weeks of severance and more for longer tenure, the full annual bonus, all unused leave paid out, six months of health cover and dedicated help for people on visas.

An Indian startup can translate most of that. Pay two to three months of gross pay plus something for each year of service, on top of notice and statutory dues. Extend the group health policy for three to six months, or pay its cost in cash. Let people keep their laptops. Publish an opt-in alumni list and make introductions. One thing does not translate: Rule 12 of the share capital rules requires at least a year between the grant and vesting of an option, so a cliff cannot be waived for options granted less than a year ago, and unvested options lapse on termination. What the company can do is give a longer window to exercise what has vested, and pay a cash amount in lieu where the unvested grant mattered; the [ESOP design lesson](/library/esop-design-pool-grants-strike-price) covers exercise windows.

Cut once and deep enough, choose roles before names, pay more than the law asks, and remember that the speech on the day is for the people who stay.

The day itself, and the people who stay

Horowitz’s method still holds. Move quickly once the decision is made: every day between the decision and the announcement is a day for it to leak, and managers who know end up lying, leaking or saying nothing. Managers tell their own people, in person or on video, one at a time, not HR and not an outside firm; people remember who told them. Train them first: what happened and why, that the decision is final, and every detail of the package, so no question goes unanswered. The CEO speaks to the whole company first, and Horowitz’s point is that the message is for the people staying: what happened, what the plan now is, and why it will work. Do not over-apologise. Then stay visible for the rest of the day and the weeks after.

Daylight filtering through vertical green blinds into a dark, empty room. — Hold every conversation on one day, managers first, and keep leadership visible in the weeks that follow. Photograph: Adam Plucinski · Pexels

Practical details decide how the day feels. Keep systems access until the conversation has happened, not before; nobody should learn from a locked laptop. Give people the rest of the day and a way to say goodbye. Have the letter, the settlement statement and the package in writing at the end of each conversation. Hold all conversations on one day.

Then turn to the people who remain. They are grieving colleagues and wondering whether they are next. Within a day, each manager meets each remaining person one-on-one. Within a week, the leadership team presents the new plan in detail, including what the company has stopped doing, because the work of the people who left does not disappear on its own. Within a month, say what has changed and what has not, and show the cash position. Watch regretted attrition for the next two quarters; the people a company most needs are the ones with the most options.

The reduction plan, in order

Two weeks before: the reason in one paragraph, the target burn from the forecast, the cut to non-people costs, the roles and the criteria, the list reviewed against them, the package costed, legal advice taken on workers and notice. One week before: managers trained with a script, letters and settlement statements prepared, the CEO’s talk written, health cover and laptop arrangements confirmed. On the day: the company meeting, the individual conversations, access changed after each one, written packages handed over. Within the statutory deadlines: final dues paid, and the re-skilling amount within forty-five days. Within a month: one-on-ones with everyone who stayed, the new plan presented, and introductions made for the people who left. Then a quarterly check that the burn is where the plan said it would be.

The figure is a sizing aid, not a forecast. Nothing here is legal, tax or investment advice.