Most founders react to runway pressure too late and cut too little. The result: multiple rounds of cuts, broken team morale, and a company that's wounded but still on the same path. The right move is to cut once, deeply, and reset to a sustainable pace.
Trigger the conversation early
Have the runway conversation when you have 12-15 months of runway, not 6. At 12 months you have leverage to make deliberate decisions. At 6 you have urgency that makes everything worse.
The questions to answer:
- How long is runway at current burn?
- What does runway look like with cuts of 10%, 25%, 40%?
- What does the path to default-alive look like (cash-flow positive)?
- What's the reasonable case for a fundable Series X in 12-18 months?
- If a fundraise fails, what's the bridge plan?
The order of cuts
Cut in this order. Each level gets harder.
Level 1: discretionary spend
- Subscriptions and SaaS tools — cancel everything not actively used.
- Conferences, events, travel.
- Advertising and paid acquisition that isn't ROI-positive within payback period.
- Office space (if hybrid or partially used).
- Contractors / agencies — easier to cut than employees.
Often saves 5-15% of burn. Mostly painless.
Level 2: hiring freeze and salary measures
- Freeze all open roles immediately.
- Pause raises and new equity grants.
- Founder salary cuts (often 30-50%).
- Senior leader voluntary salary cuts (often 10-20%).
Often saves another 10-20% of forward burn. Visible, but doesn't force layoffs yet.
Level 3: layoffs
Done once, deeply, and well. Patterns that work:
- Cut by team or function, not by individual performance. Fairness matters. "We're shutting down X initiative" is cleaner than "we picked the bottom 10% of every team."
- Make it public the same day. Internally and externally. Surprise rumor cycles damage everyone.
- Be generous with severance. 8-12 weeks base + 2-4 months health insurance + visa support if applicable. Reputation compounds.
- Help affected employees land. Founder-written recommendations, intros to portfolio companies, public announcements that they're available.
Level 4: structural changes
If layoffs aren't enough, you have a business-model problem, not a burn problem:
- Sunset unprofitable product lines.
- Exit unprofitable customer segments.
- Geographic consolidation.
- Pivot or wind down.
What not to cut
Two areas where cuts hurt more than they help:
- Customer-facing functions during high-load times. Cutting support during a renewal cycle creates a churn cliff.
- Engineering on revenue-critical systems. The temptation is to cut "the most expensive line item." But losing your senior engineers means slower growth and worse retention, which extends runway less than the salary saved.
Communicating with investors
Tell them before they read about it, not after. The structure:
- The change. What you're doing, when, and how much it saves.
- The reason. Specific market conditions and your response, not "we need more runway."
- The new operating plan. How long you'll run on this burn, what milestones you'll hit, when you'll fundraise next.
- The ask. What you need from them — intros to customers, intros to acquirers, participation in a bridge, or just patience.
Communicating with the team
After the painful conversations, the team needs context. The all-hands the same day:
- State the change clearly. No corporate fluff.
- Explain the reason — market, company, both.
- Detail what stays the same and what changes.
- Acknowledge the team's feelings. Don't minimize.
- Commit to a follow-up cadence (weekly all-hands for 4-6 weeks).
See our guide on firing well for the individual conversations.
Common downturn mistakes
- Multiple rounds of cuts. Each round damages morale more than the last. Cut once, deeply.
- Hiding the situation from the team. They already know. Pretending otherwise destroys trust.
- Founder salary stays. If layoffs are happening, founders should be cutting their own first. Visible, symbolic, essential.
- Skimping on severance. Saves money short-term, costs reputation long-term. Always be generous.
- Not pivoting when needed. If cuts can't get you to default-alive within 24 months, the business model is the problem. Cuts won't fix it.
Run the math first with the runway calculator at different burn levels. Decide cleanly, then execute fast.