Layoffs at Desire2Learn: Significant or not?

In a little-reported event the week of Thanksgiving, Desire2Learn let go 28 employees. The only public report I’m aware of comes from The Record out of Desire2Learn’s hometown of Kitchener, Ontario in Canada.

E-learning company Desire2Learn has cut about 25 workers from its product development department.

Virginia Jamieson, spokesperson for the Kitchener-based company, said nine per cent of the 280-member product development section was let go. That represents about three per cent of the firm’s total workforce. [snip]

Since it was founded in 1999, the company has grown to more than 900 [sic] employees in several countries.

“So it is a small percentage of that, but it happens to be people in Kitchener, which is where our initial growth was, so it may seem bigger than it really is,” Jamieson said.

While this move might be harsh for those employees affected, it does not sound too significant. But is there more to the story?

According to Sources

Michael and I have talked to 10 off-the-record sources and reviewed Twitter, LinkedIn and Glassdoor as we looked into this issue, and the consistent story we heard was that the layoffs may be much more significant, both in number and motivation. After research, we now believe:

• while 25 people in product development were let go, there were 28 people in total affected that week;
• a total of 56 people were let go in the past six months;
• product development is not the only group affected;
• the company now has ~750 employees, not ‘more than 900’; and
• 8 of the 10 sources indicated that the layoffs were related to the company not meeting sales growth targets.

Besides the cuts in product development, it appears that there have been quite a few people (~18) in marketing and several people in business development and project management who were also let go in the past six months.

What has me interested in this story is that Desire2Learn:

• Raised $80 million in August 2012 in the largest ever VC round for a Canadian company;
• Was profitable as of the funding round – the funds were not needed for operations at that company size;
• Has continued to grow in their core market (North American higher education), according to both Campus Computing and Edutechnica; and
• Seems to be growing in K-12, international and corporate markets.

Given this situation, why would Desire2Learn let go more than 7% of its workforce?

According to Desire2Learn

I asked Desire2Learn to comment on this story, and they provided the following response (at the time I had heard that ~100 people had been let go but now believe the number is 56).

Thanks for touching base and sharing the discussion from the field.  To start, the sources stating that close to 100 people have been “laid off” over the past four months are simply not accurate. In fact, they are way off. There have been some incremental changes over the course of the year and the restructuring that occurred last week impacted 28 people.

The assumption that this reflects the company’s performance versus the recent investment is also incorrect.  We’ve had a great year and the recent changes have nothing to do with the company’s performance – they have been strategic decisions to put the right structure in place to help Desire2Learn’s continued transformation into a global company.

This past spring, we brought in a new product team leader (Nick Oddson, who you met at FUSION) who has tremendous experience in growing global software companies.  He restructured our R&D organization last week to align the department around our new markets and strategic directions.   Other departments were reevaluated and reorganized earlier in the Fall.

As a result of these changes, Desire2Learn is in a great place for continued growth.

There is no story here other than the fact that D2L has set up a foundation to position itself for the next wave of growth.  2013 was an amazing year and we are looking to even more exciting things ahead in 2014!

I also talked to one of the lead investors, Jon Sakoda of NEA, for his perspective.

We are hiring very rapidly and have grown from ~500 people to ~750 people in less than 18 months.  This is a lot of new people, and I think great companies always need to assess their talent and determine how to transition people who can’t be long term performers. [snip]

We added 140 people and churned 56 people since June 1.   Forced churn is good and healthy when you are scaling.  All of our companies do it – it’s a best practice.

Jon also pointed me to a blog post he had previously written on the subject of companies needing to ‘churn’ employees as they rapidly grow, which is consistent with his comments on Desire2Learn.

In a high growth company one of the hardest tests of leadership and loyalty is determining who can make the ascent and who will lag behind. Paradoxically, the bonds of friendship, camaraderie, and trust that make start-up teams strong in the early part of a company’s life become the hardest obstacles to overcome in making the tough decisions that set up companies to take on the challenges ahead.  How can you lead your company through these transitions?  Here are some best practices I’ve seen great leaders follow through the years: [snip]

Don’t Make “Churn” a Bad Word – in a scaling company, there is a relentless focus on hiring great talent to fill important roles.  But it is equally important to assess overall quality, not just quantity, along the way and to be honest about hiring mistakes that are inevitable in a hyper growth environment.  Make employee “churn” a metric that is measured every quarter, and don’t make “churn” a bad word.

What We Know

• 28 people were let go in November, 25 from product development;
• There have been additional rounds of people being let go since June, totaling 56 people;
• The company’s growth in the past year (in north american higher ed) appears to be in the ~6% range, from 11.1% to 11.8% from 2012 to 2013;
• The company is investing and most likely growing in K-12, international and corporate markets;
• The company has grown its workforce by 50% in the past 18 months, going from ~500 to ~750; and
• Since the Aug 2012 VC funding, the company has acquired three companies or platforms (Knowillage, Wiggio and Degree Compass) and opened four new offices (Boston, Melbourne,  Sao Paolo, and Newfoundland) to join London and Singapore as their international offices.

What We Don’t Know

• How much has D2L grown in K-12, international, and non-education markets not measured by Campus Computing or Edutechnica;
• How much of the $80 million investment is still available for operations (SEC rules prevent the company or investors from commenting on financial matters); and
• Whether the end-of-January 2013 massive system outages or the problems with its Analytics engine have affected sales or not.

Additional Thoughts

In the end, I have trouble believing that these recent cuts are solely based on improving Desire2Learn’s growth without needing to correct for slower-than-expected growth. The arguments made by our sources that these are significant cuts driven by not hitting growth targets are compelling. However, there is no smoking gun that I have found to back up these claims definitively.

What I do feel confident in saying regarding employee numbers is that there’s more to the story here than just ‘churn’ alongside aggressive hiring. Since the end of the Blackboard patent lawsuit, Desire2Learn has grown at an average of 13 employees per month (140 in Nov 09, 560 in Sep 12, 750 in Nov 13). Yet the numbers might have actually gone down since July 2013:

• At FUSION in July the company indicated they had more than 800 employees; yet
• Today the company has ~750 employees.

Unless the company employed more than 100 summer interns, it appears that the growth in headcount has stopped, if not reversed. I do not know how these public numbers relate to the comment about hiring 140 and letting go 56 since June.

Update (12/16): To be more direct on this point:

• Desire2Learn had “more than 800” employees as of July 2013 at the FUSION Conference;
• The company estimates of 140 added / 56 let go leads to a net gain of ~84 over the past 18 months;
• This should lead to 884 employees today less voluntary departures;
• But they claim ~750 employees today.

This discrepancy of more than 130 employees is non-trivial and indicates there is more to the story than we are being told.

I suspect that the problems with the Analytics engine (described by Michael in this post) is having more of an impact than the fallout from January system outages. Desire2Learn invested heavily in its analytics and student success system, yet I have not seen any significant customer wins based on these product lines (although Degree Compass is showing some promise). Conversely, I am not aware of any real problems with the Summer 2013 or Fall 2013 start-of-term system performance, so perhaps Desire2Learn has recovered from the January outages.

Furthermore, the changes being made to refocus product development and even pull back on some of the product release plans makes sense to me. I think that Desire2Learn has overextended itself and would benefit from focusing more on its core product and making sure that its existing customers are happy.

The picture I get is that the truth is somewhere in the middle and yes, I believe there is more to the story than reported in the news article. I believe that Desire2Learn most likely had a difficult year in terms of failing to meet growth targets. Based on these results the company probably had to restructure and reduce middle management layers and headcount in several groups (mostly in product development and marketing). But at the same time, this is a company with financial resources to continue investing in capital projects and product improvements, and even in additional hiring.

This is a situation to keep watching over time, and we’ll keep you posted as we learn more.