Klarna boss defends how to handle staff cuts in calls that irritate some employees

Klarna CEO Sebastian Siemiatkowski and another top exec called in a company-wide video call this week to reassure staff following cuts that affected about 10% of the Swedish fintech’s 7,000-member workforce – but staff members say that Siemiatkowski angered employees by attacking their unions and advocating a 48-hour delay in telling some employees if their jobs were safe.

On Wednesday’s call Klarna’s billionaire co-founder has expressed his disappointment at “unfair and uneducated” criticism of staff cuts, which evade Sweden’s tough labor laws and unions with takeover offers for the startup’s team. Some employees outside of Sweden were laid off on the spot, and bidders also received purchase offers. “Considering the complexity… this is disappointing and I have to say I was expecting a better climate where 48 hours is an acceptable time limit to have this conversation internally,” says Siemiatkowski, who owns a $3.2 billion stake in Klarna.

The cuts mark a pause in the explosive growth of Europe’s most valuable startup. Klarna raised $1.6 billion in two rounds just a few months apart in early 2021, which valued the startup at $46 billion. Klarna has pioneered a digital rebrand of layaway plans, which allow shoppers to spread the cost of purchases over months, or even years, like buy now, pay later.

Investors SoftBank, Sequoia and Permira financed a dizzying expansion of Klarna, which had a headcount of 3,500 in 2020 and 5,000 in 2021 through the pandemic e-commerce boom. Klarna’s promise to stagger payments on purchases has delighted cash-strapped consumers and merchants with the promise of extra sales, but the Stockholm-based startup has seen losses double to $487 million in 2021.

Klarna imposed a hiring freeze on some departments in late April, which employees say they interpreted as signs of a slowdown. The company also pushed for salary increases to be paid in stock options rather than cash last year. Siemiatkowski also reportedly sought to raise a new $1 billion round with an initially flat valuation, but he met with resistance from investors due to the sharp drop in the stock market value of public tech companies.

The move by Klarna, which is chaired by Sir Michael Moritz of Sequoia Capital, to cut spending came as the Silicon Valley venture capital firm issued a grim memo on the global economy to its portfolio companies. The memorandum, which was first released by The informationurged founders to conserve capital to avoid a “death spiral” in what could be a prolonged downturn.

Headwinds for the 17-year-old startup began before the war in Ukraine sent a chill through public markets. While rising inflation should make the company’s deferred payment business more attractive to buyers, it also increases the risk of default. Klarna primarily finances its loans with deposits from its German and Swedish banking operations, but has seen its borrowing costs rise sharply in the past year, according to Bloomberg. Regulators around the world began to question whether Klarna and its rivals were pushing consumers to take on unaffordable levels of debt.

Klarna also faced competition from a new crop of buy-now, pay-later operators in Europe and listed rivals such as Affirm, PayPal and Block Inc in the United States. Competitors have described prices from Klarna’s agreements with some major retailers to guarantee exclusivity as “unreasonable”, while some current and former employees have expressed concern about the business.

Affirm’s share price has dropped 70% since the start of the year, while PayPal and Block, which was formed from Square’s acquisition of Afterpay, have lost half their value over the same period. “I don’t think anyone could have expected private markets to be unaffected by the big correction in public markets,” says Konstantin Sidorov, founder and CEO of the London Technology Club and an investor in Klarna.

Klarna shifted its focus in the US to focus on Nike, Best Buy and other retail powerhouses after ending a sales team focused on hiring small dealers in early 2020. after people become more familiar with Klarna rather than of having a bad experience initially with smaller companies,” says a former Klarna employee.

Employees in the United States were particularly hard hit with about a third of the company’s 650 employees in New York, and Columbus, Ohio, was laid off earlier this week. The company’s attempt to become a shopping portal in its own right and earn advertising revenue within its own app has also faced challenges. Despite that, Siemiatkowski said Klarna would “bend” the US with a focus on getting better margins on existing borrowers rather than winning over new buyers.

The pain of restructuring can also weigh on future growth. Forbes understands that a large international e-commerce company was informed earlier this week that any deal with Klarna would be shelved for at least six months because of its internal changes.

Klarna also faced challenges internally. Forbes spoke to more than ten current and former Klarna employees who spoke of a company structure focused on creating “internal startups” of around ten employees that, along with frequent changes, management changes and hundreds of new hires being added every months, led to confusion.

This confusion was seen in the way the company handled its layoffs. A mandatory company-wide meeting appeared on company-wide calendars on Monday night. In a pre-recorded video, Siemiatkowski spoke about the war in Ukraine and an economic crisis before sharing the news of the mass layoffs. At the end of the message, shocked employees were left waiting for emails that arrived over the next few days, letting them know if they still had a job. “After that, it got pretty chaotic. If they had cut the 10% and told everyone they were staying, they would have felt safe,” says a Klarna employee who was offered a buyout.

The cuts swept through the company. New hires, some just with the company for a matter of days, along with veterans of the company, were impacted. Managers didn’t know who on their team would be cut. Candidates who signed contracts and planned to move to Stockholm turned to expat Facebook groups and Telegram chats for answers. “My boss found out I was fired by me, which was totally bizarre,” says another former US employee.

The move shook surviving officials who questioned the logic of the cuts. Sweden’s SVT reported that among those affected were five of the nine employees who headed an unrecognized union council within the company. “People are now sitting here thinking what is this company doing? People who worked for ten years were expelled in the same way as people who worked here for two weeks,” says a current Klarna employee.

A protracted battle with Swedish unions over layoffs could also add to Klarna’s pain. they don’t have to,” says another member of the Klarna team.

The turnaround at Sweden’s star startup, which has only recently surpassed local rival Spotify in valuation, and in public markets is likely to put a damper on rumors about Klarna’s plans for a public listing. “We will probably continue to be private for a little while longer. It’s always a question of: the more big long-term investors we can attract, the greater our appetite to remain private longer,” says Siemiatkowski. in an interview with Financial Times.

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