Sequoia ‘Black Swan’ memo could steer companies off of the COVID-19 cliff

Nearly two weeks ago, venture capital (VC) company, Sequoia Capital sent a note, “Coronavirus: The Black Swan of 2020” to all founders of companies currently in their portfolio to offer insight into how they should handle the new business environment in the midst of a global pandemic.

Much of the advice was fairly standard “hunker down” advice – plan, prepare, and perform. Move quickly and be decisive. Be “bold,” they say in the memo. Anyone who took an intro business course in college knows the drill.

There are the predictable anti-capitalism responses in comments on the original post and across social media, but simultaneously a realistically dark and recklessly invisible reaction spreading in the tech world.

In their actionable advice, one point was the shortest, but loudest statement: “5. Headcount. Given all of the above stress points on your finances, this might be a time to evaluate critically whether you can do more with less and raise productivity.”

We are now being told that boards are meeting behind closed doors and referencing the “Black Swan” memo, and they’re seeking to act “clinically realistic,” as Sequoia instructed. Even if they’re not in Sequoia’s portfolio, the weight of the VC firm’s influence has rippled across the nation and pushed companies to put real thought into mass layoffs. In the middle of a global pandemic.

Why is that the takeaway from the memo when so many other points were made? Because we’re all panicking, and it feels like one of the only immediately actionable moves. Hunker down, trim the fat, keep as much cash on hand, be brutal, keep the company afloat. It makes sense, but it’s wildly tone-deaf and instead of leading on the topic (offering insights into how NOT to lose the loyalty and “culture” brands have so heavily invested in), it is cold. Clinical.

“5. Headcount” is echoing in boardrooms across America.

Bret Starr, Founder & CEO of B2B marketing agency, The Starr Conspiracy wrote a scathing point-by-point takedown of the Black Swan memo, also taking issue with pressuring their portfolio to review their headcount. “There it is. This is Sequoia at its core. Why wait to fire people? Go ahead and fire them now! And while you’re at it, see if you can squeeze the people left behind to be more “productive.” (Remember that part at the beginning of the memo when they talked about how much they care about people? Come on. Sequoia doesn’t care about people. They care about money.)”

Just yesterday, we wrote an open letter to employers struggling with sending their teams home or not, noting, “now is not the time to shut down your hiring pipelines, in fact, right now is the exact time you need to fire up your efforts, because remote work is going to reveal a lot about your team, and some folks are going to shine more than you ever knew they could. But in this sink or swim scenario, some are going to sink and you need to have a deep roster to pull from. If you don’t keep that pipeline full, your sinkers could drag your whole company down.”

Starr concluded, “Sequoia had an opportunity (like the rest of us) to reassure their portfolio companies and demonstrate their care for our people, our communities, and our country. Instead, they whipped up fear and uncertainty, gave bad marketing advice, recommended firing some people and making others work harder, told folks to hoard cash, said some stupid shit about Darwin, mansplained a bunch of stuff using jargon, and trotted out Alfred Lin so he could once again compare shit to Zappos. None of us are selling shoes, dude! And we wonder why people are pissed at Silicon Valley.”

This would be the time to confess that I personally believe capitalism is beautiful. Truly. But even “bold” leaders and “clinical” thinkers who also believe in capitalism have an opportunity to do the right thing here without losing their companies.

And maybe that’s the Austin tech geek inside of me raging at the idea of taking an axe to something that requires a scalpel and a steady hand. A native of the nation’s most philanthropic city, I’m surrounded by people that give as much time, talent, and treasure (money) as possible. We’re used to coming together and helping each other out.

And one defining characteristic of Austin tech companies is thinking creatively – something others look to us for. And a top reason firms like Sequoia flop their thick wallets around our town.

So here’s what I hope Austin tech companies will do instead of use an axe to blindly chop down headcount – pick up a scalpel, take a deep breath, and make small cuts.

As teams work remotely, some are going to sink while others swim, so do a productivity audit, do a leadership audit.

Look at how people are working right this very minute – are there managers going above and beyond to make sure the transition to remote is seamless? Keep ’em. Are there support staff spotting challenges and offering ideas on fixing them? Keep ’em. Is there anyone on the team looking at budgets without being asked and sending in suggestions for how to mitigate the pandemic onslaught? Keep ’em. Are there sales staff that are dragging their feet and offering excuses while others are digging in and thinking outside of the box? You know what to do.

Leaders that can’t take the time to pick up the scalpel are going to have a hard time recruiting QUALITY talent after this pandemic is under control.

Can companies afford to take that kind of hit? Can Sequoia companies take that hit? Did Sequoia just put their portfolio companies in a negative spotlight by association with their Black Swan memo?

When layoffs begin (and of course they will, it’s inevitable), how awful will the headlines about each company be? Will it be clear whether a compassionate scalpel was used, or if the Board pressured a CEO into indiscriminately flailing an axe around the corporate offices for two minutes then staring at the fallout?

Sequoia’s advice isn’t just in conflict with Austin tech culture, it is the worst kind of useless “business advice” that people are going to listen to, be they a 5-person graphic design shop in Dallas, or a 1,500-person SaaS company in San Francisco.

Because Sequoia is the source, the generic advice will be followed blindly.

It speaks volumes about Sequoia that the memo wasn’t their fund offering to chip in a bit to help mitigate the impact of layoffs and offer staff severance packages to make sure those impacted don’t literally starve during this pandemic. There was no mention of mental health. There were no whispers of mentoring their portfolio companies through this storm to make sure their long term brand name survives this potential PR hit. Nothing about doing the right thing or being American, or anything about a rising tide lifting all boats.

Instead, it was a list of platitudes that could have been written by a high schooler assigned a paper on “how to do business during a crisis.”

Of course it is prudent to prepare for the worst right now, because it’s looking like a serious possibility, but thinking more creatively (doing a productivity and leadership audit (scalpel) versus aimlessly cutting higher paid or underutilized staff (axe)) is the only way to protect the company’s reputation long-term.

Trust me, people won’t forget how EVERY company acted during the COVID-19 crisis. In this current environment, the world is news obsessed, they’re taking stock, and can you blame them?

News organizations like ours won’t be deleting stories about companies using the axe when they could have used the scalpel. Or not made cuts at all.

America is watching business leaders right now more than ever, and companies’ futures rely on the decisions they make right this minute.