Xsolla founder on mass layoffs and AI-based employee appraisal system: “Stories of fear sell better than those of hope”

An interview with Agapitov was published by Meduza on August 6. Below is the summary of that interview.

On Xsolla’s internal appraisal system

• The company’s decision regarding layoffs was inspired by Netflix, Harward, and other organizations that lay off 10% of the most unengaged and ineffective employees on a regular basis. However, Xsolla had no plans to fire these many people until it stopped growing by 40% year-over-year.
• The performance rating system was implemented in early 2021. The company measures its employees’ efficiency on a 100-point scale, based on 30 characteristics. The list includes writing and reading articles in the internal Wiki, creating and closing task tickets, as well as dashboard activity and participation in internal meetings.
• According to Agapitov, writing and reading texts is way more efficient than making presentations. That’s why he thinks that every employee should read the information about the business and other companies in Xsolla’s Wiki. “Some people just didn’t really want to educate themselves or learn about the company’s plans. We offered them a generous severance pay,” Agapitov said.
• Xsolla only tracks work logs, so the founder thinks that the company doesn’t violate employees’ privacy. He claimed that if a person’s “digital footprint” is not visible, they shouldn’t work at Xsolla.
• The company also planned to implement the so-called “digital mirror,” so every employee could learn what AI thinks of their work and engagement. However, the development team wasn’t enthusiastic about this idea, so its rollout is pending.

Why did Xsolla lay off dozens of people at once?

• The company analyzes its revenue twice a week, comparing figures year-over-year.
• Xsolla’s revenue increased by 80% last year, thanks to the effect that the pandemic had on the games industry.
• However, the growth slowed down because the lack of offline events made it harder to attract new customers to the platform.
• According to Agapitov, Xsolla stopped showing a 40% growth during the last six months, so he decided to reduce the staff.

More details about the layoffs

• Roughly 150 laid-off employees account for a third of the company’s staff of around 500 people. The goal was to reduce the salary budget by ten percent, not to fire 10 percent of the employees. Agapitov was prepared to fire as many low-performing people from the bottom of the rating as necessary to achieve a 10% salary fund reduction.
• Most layoffs happened in Perm, where Xsolla was initially founded. Agapitov fired six people from the US (out of 50 US-based staff) and two people from Asia (out of 12 employees working at the South Korean office).
• The company laid off people specializing in different spheres. “Worst programmers, worst marketers, worst office managers, worst admins, and even worst accountants,” Agapitov commented.
• Xsolla plans to cut 10% of its budget every 12 months until it starts showing at least a 40% growth again. The company is now looking for new talent in Asia and Europe.
• Agapitov also admitted that his blunt statements could have scared a lot of employees. “I realize I’m having trouble with my emotional intelligence but I’m working on it,” he said.
• Despite the mass layoffs, he isn’t afraid of possible investigations. He thinks that Xsolla hasn’t violated Russian labor laws and, formally, hasn’t fired anyone yet. “To all employees who received the letter, we said that the company doesn’t value you, so we will find you a better job with a better salary,” Agapitov commented. “Likewise, you aren’t interested in Xsolla’s future either. So here is your generous severance pay, good luck.”
• The Xsolla founder also realizes that some people might want to leave in the wake of this controversy. But he thinks that his company only needs engaged employees who care about their personal and professional growth.

Why does Agapitov think that he did everything right?

• He claimed that the US media would have seen the decision as quite positive, as Xsolla follows the “practices common for this region.”
• Agapitov went on to say how companies nowadays protect minorities and can be overly cautios if they have to fire their representatives, which can make these employees almost immune to layoffs. “Our algorithm-based solution is as unbiased as possible. Therefore, from the point of view of the US media and society, it is much better for us [to fire a person based on the algorithm] rather than some manager doing it, based on their own views,” he said.
• According to Agapitov, the whole controversy started because remote work in Russia is a huge problem. He claimed that some find it difficult to work from home, so if someone criticizes his decision, it is only because they realize that they are inefficient employees themselves.
• The Xsolla founder also noted that the US PR firm he worked with doesn’t see this situation as a crisis for the company. “Whatever you tell the press, there are only two kinds of stories  — stories of fear and stories of hope. Fear sells better, and this is a scary story that sells very well,” Agapitov said.