‘We have some bad news’: How Jack Ma handled layoffs at Alibaba

I was taken to an office where Jack was reading his email. He was visibly concerned about the meeting ahead. “I don’t know what to say today,” he said.

The following is an edited excerpt from Alibaba’s World: How a Remarkable Chinese Company Is Changing the Face of Global Business by Porter Erisman. The excerpt is provided by St. Martin’s Press. You can buy a copy here.

“This whole time we’ve been growing, I’ve only been hiring people. This is the first time we’ve ever had to fire people. How do we do this?”

I felt bad for Jack. Although many of the foreign staff members didn’t view him as a credible manager, I knew that only his good intentions and optimism had brought us this far. For a Chinese company, opening a Silicon Valley office was a huge source of pride. For the last several months, we’d been traveling around China boasting about our growing US staff, holding it up as a sign of Alibaba’s global importance.

After discussing the best way to handle it, we called the employees into a large meeting room. There was a tangible pall, as people sensed bad news was coming. Some were meeting Jack for the first time, and I hoped that the session would not become hostile. After the seats around the table filled up, another row of colleagues formed behind them, filling the room to the walls. Once everyone was settled, we closed the door and Jack began to speak.

“I want everyone to know how much we appreciate how hard everyone is working. But I’m afraid that I’m here with some bad news. We are going to have to cut some of our staff.” Around the room eyes dropped. Jack continued: “A few months ago we thought it would be best to move our operations to Silicon Valley. Everyone thought that if you are going to run an English-language website, this is where you have to be. The engineers are here, the English speakers are here, and the internet people are all here. So it really seemed like the right decision at the time.

“But since we did that, it seems we created more problems in the company than ever before. Everyone here has been working so hard on different projects, but the communication is very difficult between here and our Hangzhou office. When you guys come into the office, it is the end of the day in Hangzhou. When we come into the office, you are all leaving. It seems it’s been impossible to communicate, and I know you’ve all been frustrated when projects were started and then canceled. For all of us Alibaba is a dream. Everyone here has worked so hard and really believes in this dream. We want to make this a company that lasts 80 years. But if we want to make this dream happen, we have to be realistic. Right now, it doesn’t make sense for us to have a big center in Silicon Valley. If we want to make the company grow again someday, we are going to have to cut back today.”

“I feel really bad and sorry, for you and your families. At the end of the day the mistakes we made are my responsibility. So I’m very sorry for this. I hope that some-day, when the company is healthy, we can grow again and give you another chance to join Alibaba.” It was an emotional speech and, as was usual for Jack, straight from his heart.

I looked around the room, and the hostility I feared had not materialized. People seemed to respect Jack’s candor and were resigned to the decision he had made. The only remaining question was who would be cut, and my job was to tell them. We were laying off about half the staff, and that sent a chill through the office. Although I didn’t know the staff personally, my stomach churned each time I sat down with one of the unlucky.

The company offered laid-off staff members three months of salary and allowed them to keep some of their stock options. To my surprise many were not as concerned about losing their jobs as they were sad to be leaving Alibaba. Even some of the Western staff in the office, many of whom had no personal connection to China, seemed attached to the company and its mission. Back at the Alibaba House, I collapsed on the couch, glad to have a difficult day behind me. The company’s future was still uncertain, but at least we were taking the painful steps necessary to survive. It was also clear that  if any company could subsist on a tiny budget, we could do it.

After all, Alibaba’s founders had paid themselves a salary of only RMB 500 ($60) per month in the company’s early days. Compared to the employees of our global competitors, we could more easily go back to living on a shoestring budget. Our “Back to China” strategy had begun, and if we had to, the team could contract all the way back to the Alibaba apartment, cutting costs along the way. Now, if only we had a revenue model, I thought to myself, we just might have a chance.

A few days later, after Jack and I returned to China, he called me. I was surprised to hear a shaky voice on the other end of the line. “Porter, can I ask you a question?” His voice was breaking; it sounded like he might even be crying. “Sure, Jack. What’s wrong?” “Am I a bad person?” In the eight months I’d known him, I’d never seen his optimism or confidence waver. “What do you mean?” “I’m getting a lot of calls from staff, and they are angry with me about the layoffs. I know it was my fault that I made those decisions. And now everyone is mad at me. But do you think I’m a bad person for what I did?” In the background I could hear Jack sniffling.

I felt sad for him. Given all of the chaos and disorganization in the company, I had seen this day coming. But rather than being angry at our CEO for letting the company fall into such disarray, I was sympathetic. In my mind Jack was still just an English teacher who had reached for the stars. It was hard to blame him for overreaching. “Jack, you did what you had to do. The company wouldn’t survive if you didn’t make those decisions.”