Better.com CEO Doesn't Rule Out More Layoffs Or a Down Round

One month after a round of layoffs at Better.com, which specializes in mortgage lending, CEO Vishal Garg terminated another group of 900 employees via Zoom. He expressed his displeasure with their unproductive habits and castigated them for taking time away from colleagues and customers by being unproductive.

Though a single round of layoffs may appear to be devastating for a company, it doesn't guarantee more will follow. That is why it is essential to watch out for warning signs.

Better.com’s CEO Doesn’t Rule Out More Layoffs or a Down Round

After a difficult year, a company backed by major tech firm has had to reduce its workforce. Healthcare automation startup Olive had grown to 450 employees before cutting back last summer; now there are only 215 staff members remaining.

Though the economy has seen improvement over the past year, companies have struggled to retain their staff as they've had to cut costs and boost margins. That has created a challenge for outplacement and talent acquisition services like Randstad RiseSmart - which specializes in helping employers navigate through the difficult emotional process of involuntary employee exits.

Layoffs are an inevitable part of business, yet they're often handled poorly. According to Sandra Sucher, professor at Harvard Business School who studies layoffs, companies often make "mistakes" when determining who needs to go and other errors could have been avoided with proper attention to the process.

Davenport lamented the trend, noting it makes it difficult for companies to achieve the best results when recruiting the right employees or keeping those already employed. "This is an unfortunate trend and one we must address," he said.

Another contributing factor to the slowdown is an overstaffing of overly optimistic executives who lack knowledge on how to weather an economic downturn. This can create a culture of arrogance which does not promote healthy relationships among workers or managers, ultimately detrimental to the company's long-term success.

According to Davenport, many tech firms experience disengaged or angry employees who can't do their jobs well and may leave for more lucrative opportunities. He proposed that Better make some changes before any layoffs, including hiring a new CEO with experience running an early-stage tech company who can help the company foster an environment of employee ownership.

At Better, Garg's leadership issues led to more employee resignations and the departure of several key executives such as Patrick Lenihan, vice president of communications, and Melanie Hahn, head of marketing. This in turn caused the tech giant to delay plans for a public offering through a merger with a special purpose acquisition company until 2021.

Vishal Garg’s Leadership Flare-Ups

Garg is a volatile entrepreneur who often experiences disagreements.

His history of controversies includes allegations that he diverted millions from earlier deals. Furthermore, the company has faced numerous lawsuits from former business partners over the years.

It's unclear how much the Better board was aware of these allegations before they arose. But Garg did appear to be violating many corporate governance norms; one of his closest lieutenants was given massive perks worth potentially tens of millions of dollars.

However, internal documents and interviews with senior company officials revealed that these benefits were not available to other employees. Furthermore, most of them vested immediately upon hiring rather than after a specific period of time.

Garg's behavior, which has been likened to that of notorious bad-boy CEO Al Dunlap, has caused some resentment among employees. A number of them even felt forced to resign after complaining about Garg's treatment.

Following his dismissals, Garg is said to be taking a break from his duties and working closely with an executive coach.

The company board is optimistic that Garg will return to full-time leadership soon, according to their memo.

"Vishal is taking a break from his full-time duties to reflect on his leadership, reconnect with the values that make Better great, and work closely with an executive coach." We have full faith in Vishal and believe he will ensure Better has the right leadership, focus, and vision at this critical juncture."

At Better, we are dedicated to cultivating an inclusive culture.

Better may not have the most glamorous startup idea, but their revenues last year more than tripled. They specialize in quickly approving mortgages with little or no fee attached.

Better is valued at $7.7 billion in a deal led by Japanese conglomerate SoftBank, and its revenue is expected to surpass $10 billion this year. Unfortunately, several lawsuits and governance concerns have raised doubts about whether the company is operating at an appropriate level of efficiency.

Better.com’s Layoffs

At a company meeting a few months after Better laid off about 900 workers, CEO Vishal Garg acknowledged his failure to hire enough new personnel during the mortgage fraud epidemic that hit the industry. At that meeting, Garg declared he "pissed away" $200 million by not being disciplined when spending company funds on hiring during the housing crisis.

But as mortgage rates have surged and a softbank-backed mortgage lender's SPAC deal failed, Garg has been working to revive Better into an effective business venture. He also assured investors that he remains fully dedicated to his mission of helping average Americans purchase homes even though it has been overtaken by proptech startups that cater to landlords or those able to purchase secondary residences.

Even after all this, Better laid off yet another round of workers this spring and it has now been revealed that some employees who were let go were informed they were being let go by seeing their severance payment in their bank account, rather than from direct managers. This is never a good sign for any company and certainly wasn't what Garg intended.

In a blog post on Better's website, CEO Garg explained that the layoffs occurred due to growth that occurred too quickly and an assumption that people and commerce online would be permanent. He further pointed out that many of those hired in the last year had done so for financial gain rather than Better's mission of making homeownership more accessible.

Better has had to learn a harsh lesson since Garg returned to the C-suite of an online mortgage firm aiming for fame and notoriety. In addition to laying off employees, Better has experienced numerous other setbacks since Garg returned as CEO.

For example, the company's employee communication strategy has been disorganized. TechCrunch reported that some employees were only informed of their termination by seeing severance information in their bank account; they weren't notified in person or from their direct manager.

Better.com’s SPAC Deal

According to TechCrunch, Vishal Garg does not rule out further layoffs or a down round. He recently dismissed 3,000 employees across the US and India - roughly half of their 8,000-person workforce. Workers were notified via their severance checks, and he plans to hold one-on-one calls with those affected in order to provide further updates.

In June, TechCrunch reported that Better was considering a down round as it struggled to make ends meet. After receiving a $750 million cash infusion from SPAC backers Aurora Acquisition Corp. and SoftBank, the two announced a management shuffle which may help bring the deal over the finish line sooner rather than later.

However, investors weren't pleased. Better investor Jane Pierce filed a lawsuit alleging she was told there would be no more layoffs before the SPAC merger but later claimed Garg and company lied about their financial performance, leading her to lose money. Now she is suing for $195 million in compensatory and punitive damages.

The suit comes as the SEC has been investigating SPAC deals, which allow companies to go public without disclosing their financial information. The commission is investigating how these arrangements work and whether they provide accurate details about operations to investors.

Last month, the SPAC merger deal was revised to address these concerns. It extended the outside date for the business combination until March 8, 2023 and allowed Aurora and Better to discuss alternative financing structures. Furthermore, Better agreed to cover up to $15 million in expenses related to the Aurora deal.

Meanwhile, the SEC is likely to request more information from Better as part of its ongoing review of the SPAC merger. That is because it wants to make sure it doesn't miss any vital details regarding how the two companies will be integrated.

The SEC is still reviewing the transaction, so it's essential for investors to remember there are risks associated with a SPAC transaction. These could include the merger not going through as planned, which could result in investors losing their investment. Furthermore, regulators will examine how companies conduct themselves before going public through SPACs and what type of reporting is expected from them.