Archive: May 2020. The coronavirus shock forced some of the best-funded startups to shrink their workforces and narrow their plans. This report looks at the announcements available by May 6, 2020.
Airbnb’s decision to cut roughly a quarter of its workforce made the scale of the startup retrenchment unmistakable. A large private valuation and access to investors had not insulated the company from the collapse in travel. Across other businesses, falling demand and uncertainty about the next funding round were changing the calculation behind hiring and expansion.
Airbnb: a travel shock and a smaller business
In a May 5 letter to employees, co-founder and chief executive Brian Chesky announced that nearly 1,900 of Airbnb’s 7,500 employees would leave. He said the company expected 2020 revenue to be less than half its 2019 level, despite having raised $2 billion in capital and already cut expenses.
The reduction accompanied a strategic retreat toward Airbnb’s core home-hosting business. Chesky said the company would pause Transportation and Airbnb Studios and reduce its investment in Hotels and Lux. These were plans announced during the crisis, not a description of Airbnb’s business today.
The company also outlined support for departing employees, including severance, healthcare and job-search assistance. Its announcement captured both sides of the restructuring: management’s effort to preserve the business and an immediate loss of work for thousands of people.
The layoffs extended well beyond one company
An April 21 analysis by Crunchbase News matched its private-unicorn list with the Layoffs.fyi tracker. It identified 36 private unicorns associated with 8,416 reported job cuts. Those figures were a dated snapshot of known reports, not a complete census of startup employment or a final count for the pandemic.
The same analysis found that 30 of those 36 companies had raised funding since the start of 2019. Recent fundraising therefore did not guarantee that hiring plans would survive a sudden change in demand.
For this discussion, a unicorn means a privately held startup valued at $1 billion or more. Businesses that had already gone public belong in a separate category, even when they had previously held unicorn status. Mixing the two groups can obscure which companies a layoff total actually includes.
Different businesses faced different pressures
Restaurant technology provider Toast illustrated how the disruption spread through suppliers. Restaurant Dive reported on April 8 that Toast had cut about half its staff through layoffs and furloughs. Its customers’ restaurant closures and falling sales affected the platform supporting their operations. Layoffs and furloughs were distinct measures, so the announcement should not be read as saying every affected role was permanently eliminated.
Publicly traded Lyft provided a separate, documented example. In its April 29 regulatory filing, the company announced a plan to terminate approximately 982 employees, or 17% of its workforce. It separately reported about 288 furloughs and temporary salary reductions. Lyft linked the measures to reducing operating expenses and adjusting cash flow during the pandemic.
These examples show why a single explanation for every startup cut would be inadequate. A travel marketplace, a restaurant platform and a ride-hailing company faced different operating conditions, even when the resulting announcements all involved staff reductions.
Investors were reassessing the assumptions behind growth
Sequoia Capital’s March 5 memo to founders and chief executives had already urged companies to reconsider cash reserves, fundraising, sales forecasts, marketing, staffing and capital spending. The firm warned that both customer demand and access to attractive financing could weaken.
The financing issue mattered because a valuation is not the same as cash available to pay employees. If a company was spending more than it brought in, slower sales or a more difficult fundraising environment could shorten the time it had to adjust.
By early May, the retreat was visible in concrete decisions: fewer employees, suspended projects and more selective spending. The evidence did not establish that every unicorn would fail or that every cost reduction would work. It showed how quickly the pandemic had turned ambitious growth plans into decisions about what each business could afford to keep doing.
