Fredrik Harkort argues cost cutting is not a business model but a means to a leaner, healthier organisation, and that repeated cuts breed a culture of fear.
Fredrik Harkort's raft exercise tells founders in crisis to keep only the few people with the right skills and mindset, perhaps 34 of 76, and to make cuts early and hard rather than in slices.
Fredrik Harkort says a very conservative cash plan showing the runway and legal steps, including dismissal and collective redundancy rules, is the most important element of a restructuring.
Why struggling startups should make one deep cut, early
Startup restructuring works when it happens early, once and deep. Fredrik Harkort, who has led several turnarounds, treats cutting as a way to build a smaller company that can survive and rebuild. Founder optimism and investor pressure to defend valuations usually delay the decision until it is nearly too late.
Takeaways
Cut early and hard, not in slices. A restructuring starts when more than 20 percent of staff must leave. Gradual rounds do more damage and breed a culture of fear. McMakler cut 100 staff in July 2022, 200 that October, then 60 twice in 2023.
Cost cutting is not a business model. Fredrik treats cuts as a means to a leaner, stronger organisation. Done early, a restructuring opens a real chance. A company with nine months of runway and 20 percent of its team can use that time to build something new.
A conservative cash plan comes first. Fredrik calls a very conservative financial plan the most important tool, because it shows how long cash lasts if things go badly. It must also map legal steps such as dismissal rules and collective redundancy notification.
Missed investor expectations trigger many restructurings. Jan says startups often struggle less with profitability than with targets agreed with VCs, like reaching Series B in four countries. After the cheap money of 2021 to 2023, GoStudent cut 70 percent of its workforce.
Track revenue per employee, not headcount. Fredrik proposes revenue or profit per employee as an early warning metric. Jan says raw headcount says little, pointing to Trade Republic, last valued at 12bn, with a fraction of the staff per revenue of N26 and Revolut.
Founder optimism delays the hard decision. Founders are optimists by definition and often deny problems until shortly before collapse, Fredrik says. Jan warns of hubris and suggests investors call in advisers early. Fredrik sees good later-stage investors as an early filter.
The raft exercise for choosing who stays
A company in crisis is a raft, not a cruise ship. Founders pick only the people with the skills and mindset to cross the Atlantic with them, often around 34 out of 76.
A chief marketing officer costing 160,000 euros plus a company car is not who Fredrik would keep on the raft.
The leader must be a war-time CEO willing to make hard calls, a term Jan links to Ben Horowitz's book.
Share financial plans openly with the remaining team. In a current mandate, staff accept a 30 percent pay cut, with the founders going first.
Fredrik's first big case was BodyChange, which Ströer had grown past 200 staff. He and his wife had three months to reach profit and cut it to under 30.
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On this episode 2
Show 1
The bootstrapping disagreement
Fredrik says bootstrappers have to be better founders. Cleverly raised about 2.2m euros too early, and the money hid lessons.
Jan calls that too blanket. Trade Republic, backed by Creandum and Project A after four years in stealth, could not have been built by bootstrapping alone.