Should I lay off the newest employees first to be fair?

No. Cutting by tenure, sometimes called last in first out, protects seniority rather than the roles that actually keep revenue and operations running. A newer employee may hold a function no one else can cover, while a longer tenured employee may be in a role the business can survive without; tenure alone does not tell you which is which.

How do I decide between two people in similar roles when I can only keep one?

Compare them on direct measurable contribution such as revenue generated or client relationships retained, on how quickly the function could be rebuilt if you are wrong, and on whether their skills overlap with someone else already on the team. Avoid deciding based on who you personally prefer working with, since that criterion has no connection to what the business needs to survive.

Is it better to cut deeply once or make smaller cuts over time?

Deeper, well reasoned cuts made once are generally better than repeated small rounds, because repeated layoffs damage trust and productivity among remaining staff far more than a single decisive round. If your cost structure still requires further cuts a few months later, it usually means the first round did not correctly identify which roles were actually load bearing.

How to Decide Who to Lay Off When Cutting Costs

Layoff decisions made on gut feel or tenure almost always cost more later than the payroll they save today.

Cutting headcount is one of the few business decisions where the emotional cost and the financial cost hit at the same time, which is exactly why founders default to bad shortcuts. They lay off the newest hire because it feels fair. They keep the person they like most instead of the person the business needs most. They cut a whole department evenly instead of asking which functions actually protect revenue. None of that is a criteria based decision; it is a way of avoiding the discomfort of making one.

The goal is not to find a formula that removes the pain. It is to build a set of criteria before you look at any names, so the decision is defensible, consistent, and actually tied to what keeps the company alive.

Why seniority and personal comfort are the wrong starting points

Seniority feels fair because it is easy to explain, but it has no relationship to whether a role is load bearing. A senior hire who has drifted into a low impact function is not more valuable than a junior person who is the only one who understands your billing system or your largest client relationship. Comfort is worse: it optimizes for how the founder feels making the call, not for what the business needs to survive the next two quarters.

Both approaches also create a pattern that repeats. If the first round of cuts is based on who is easiest to let go rather than what the business needs, the second round, if it comes, will be even more painful because the first round did not actually fix the underlying cost structure.

Build the criteria before you build the list

Role impact

For every role, ask what breaks if this position disappears tomorrow. Categorize roles into three tiers: those that directly produce revenue or retain existing customers, those that support the people who do, and those that are useful but not currently load bearing. This is not about job titles; a support role can be tier one if it is the only thing preventing churn on your biggest account, and a sales role can be tier three if it has produced nothing in six months.

Revenue contribution

Wherever you can, attach a number to a role, not a feeling. Direct revenue generated, cost of the function relative to what it protects, and time to replace the function if you are wrong. A role that costs a lot but protects a disproportionate amount of revenue is not a candidate for cuts even if it feels expensive on paper.

Redundancy and cross coverage

Where two people can do the same critical function, that is a legitimate place to consolidate. Where only one person can do a critical function, removing them is a different kind of risk than a cost saving; you are trading payroll for operational exposure, and that tradeoff needs to be named explicitly, not discovered later.

A simple way to score it

Score every role or person on the same three dimensions, using a simple scale, before you let any personal history into the room.

Criteria	What it measures	Why it beats intuition
Revenue proximity	How directly the role touches revenue generation or retention	Removes bias toward roles that feel important but are not measured
Replacement cost	How long and how expensive it would be to rebuild the function later	Prevents cutting something that is cheap now and expensive to rebuild in six months
Redundancy	Whether another person or system can absorb the function	Separates genuine overlap from single points of failure

None of this removes judgment. It gives the judgment a structure to sit inside, so the decision can be explained to the person you are letting go, to the people who remain, and to yourself six months later.

Common mistakes founders make under pressure

Cutting evenly across every department to seem fair, which often guts a critical function while leaving a low impact one untouched.
Protecting the people closest to the founder personally rather than the roles closest to revenue.
Treating the layoff as a one time event instead of asking whether the underlying cost structure will force a second round in three months.
Making the decision alone, at speed, with no one to argue the other side before it becomes final.

What to do once the list exists

Before anything is communicated, stress test the list against a single question: if a competitor hired away exactly the people on this list tomorrow, how much would it hurt. If the answer is a lot, the criteria were not applied correctly, or comfort crept back into the decision. This is also the point where it helps to have someone argue against your own list, specifically someone who has no personal stake in being liked by the people affected.

Founders without a board or a cofounder often have no one to do this with. Some use a general AI chatbot to think out loud, which can be useful for organizing thoughts but tends to agree with whatever framing you feed it, which is the opposite of what a layoff decision needs. Others bring it to an advisor or a peer group if they have one. Ralvan approaches this by having five AI advisors, built on deliberately different decision frameworks, question the brief, argue the criteria from conflicting angles, and vote on a specific resolution rather than a vague suggestion; the record of dissent is often more useful than the vote itself, because it shows you which assumptions were actually contested. It is a synthesis of frameworks, not a replacement for someone with direct knowledge of your industry or legal exposure around termination, and any tool in this category should be treated as a pressure test, not an authority.

The uncomfortable part no framework removes

Objective criteria make the decision defensible, not painless. The people affected will still be hurt, and the founder will still carry the weight of the call. What the criteria buys you is the ability to say, honestly, that the decision was made on what the business needed to survive rather than on who was easiest to face in the room. That distinction matters far more in six months than it feels like it does today.

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Ralvan is a subscription product that gives founders and small business owners a persistent panel of five AI advisors, modeled on documented decision frameworks of well known business leaders, who meet weekly to question, deliberate, and vote on a binding resolution.

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