Tough times, hard decisions.

Given the challenging economic environment, we’ve decided to cut costs at Mahalo.

Although we’ve got a significant amount of cash on hand, and the business is ahead of schedule in terms of traffic (4m uniques a month, double where we thought we would be at this point), we’re fairly certain that the advertising climate for the next two years will be severely depressed. To ignore this obvious fact would be irresponsible.

We’ve laid off a just under 10% of our full-time staff, cut our overhead by doing smart things like renting desks (we have six offices in Santa Monica fyi), and reorganized our editorial department to focus on freelance positions over in-house editors. The net result of the effort is we are giving Mahalo another year of “dry power” (or runway) to complete our mission.

We can now operate past 2012 even if we never make any advertising revenue, and truth be told building advertising-based companies is my specialty (the last two, Silicon Alley Reporter and Weblogs, Inc. each broke 10m a year revenue between their third and forth years). Perhaps we’re being too conservative, but I’ve rarely heard of companies that went out of business because they made cuts too early, and I’ve heard of many who have reported the opposite.

As the CEO of the company, the responsibility for these cuts are mine and mine alone. Obviously, I did anticipate that the market would correct and that is why we raised $20 million over two rounds of funding before we launched. That move ensures that Mahalo will be able to get to profitability and ride through what is sure to be a very deep and painful recession.

While I anticipated and prepared for the ‘internet winter’ we’re now facing (you’ve read my posts and e-mails about the startup depression I’m sure), I failed to realize how bad the situation would get. It’s much worse than I thought it would be, and ignoring market conditions today would only mean deeper cuts down the road.

It’s my responsibility to make this hard decision and I don’t take it lightly. To the people impacted I’m very sorry that I wasn’t able to anticipate this better. It’s my fault and I’m sorry that you’ve got to bear the burden of my inability to better prepare.

75 thoughts on “Tough times, hard decisions.

  1. Does this mean you will be more modest about bragging on your own personal wealth? I can’t count the times you’ve shot your mouth off about high-dollar sports cars and opulent dinners. Will firing some of the people who have helped create your wealth make you a bit more moderate in your posturing?

  2. This is never an easy decision and this economy is forcing so many to do just as you are. It’s smar thinking to act early – proactive vs. reactive. I wish all all the best in this troubling time.

  3. You should also mention that Mahalo’s daily video show, “Mahalo
    Daily” will be going from five days a week to three. It’s unfortunate
    but that’s the way the cookie crumbles.

  4. Wow, I wish the MD at my last place when he made half of our
    dev and support departments redundant (including me) was that
    honest and sincere when he told us of the cuts.

  5. I should add a week after telling us they were advertising for
    staff in the BK office, which apparently was totally inconnected.
    Lose 100 staff in UK, employ 100 in BK to do job cheaper.

  6. Very well put Jason – it’s a smart move.

    But OMG!! Does this mean you won’t be buying the 2nd Tesla.

  7. This post must have been very tough to write. I admire your
    transparency and honesty. My thoughts are with the talented people
    you are laying off, opportunities tend to pop in the middle of
    the storms, let us hope their talent lead them to a safe harbor.

  8. As always – a class act. I think it will be much worse, though simultaneously I think there is nothing but opportunity now… I’m hearing a lot of things about wind, shelter and windmills these days.

  9. Although yes web ads will be depressed for 18 months I did find a
    service infrastructure play directly related to web 2.0..

    AND I GOT MY FIRST CLIENT..:)

    While ads will be down..
    Overall outlook is not extremely bad or
    extremely bleak.

    But I had to make some hard choices
    as well.. no full time hiring for awhile and etc.

    I hope Taurus is well after eye surgery and take care Jason.
    yes still pushing to be a Tech Crunch50-2009 applicant.

  10. This doesn’t add up – at least to this uninformed outsider.

    It’s almost 2009. You added a year of runway, through 2012, which means you had 3 years and now have 4 years. I.e., you made a 10% cut in staff, plus some other cuts, but you reaped a 33% gain in runway.

    That’s a pretty big discrepancy. It could be explained if you’d cut people with disproportionately high salaries, or you made really big cuts elsewhere. But you also say you’ve hired (or are hiring) freelancers and their salaries are presumably part of your runway calculation.

    Of course there’s no need to explain, but the high-level numbers you’ve given don’t make sense.

  11. I think it’s smart to start battening down the hatches,
    I think we’re all preparing for a long cold winter. Have you all
    already noticed a drop in ad revenue?

  12. Not gonna tell you Great job or sorry that this is happening to you as this seems reactionary, almost a knee jerk response.
    Whatever you do, don’t even think about trying to make things work just cut the fat. Your employees
    families won’t mind. Wonder who gets cut in the 2nd round? Hopefully you told them yourself. Mahalo=epic fail

  13. You guys obviously don’t pay attention to the roller coaster ride of antics and lying that surrounds Jason. It’s to bad about the people that had to be let go, but Jason is a tool and these people are better off not working for him.

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