At the beginning of January, a group of remote employees for the online design platform Modsy were invited to a videoconference. It was a fairly typical request, but as it turned out, this was not a typical meeting. The host, a Modsy supervisor, seemingly reading from a prepared document, launched quickly into some bad news: “Unfortunately, if you are on this call, your position has been eliminated.” She continued to read the terms of the firing, then left the floor open for questions.

There was a pause. Then a voice popped up: “Is this a joke?”

In a time of mass layoffs and furloughs, a dozen or so employees being let go might not register as a surprise—but this was January, and Modsy had had a good 2019. In May, the company had raised $37 million in a Series C round of funding, bringing its total capitalization to just over $70 million. Modsy also launched a line of furniture, originally called Minna Home, then renamed to Ravine, that would enable the site to command a greater margin on purchases made through its platform. According to a former employee, the site earned over $1 million on Black Friday (Modsy declined to discuss sales numbers). The ranks of the company’s style network—its team of contracted interior designers—had swelled to over 800 by October.

However, throughout the first quarter of 2020, Modsy has been aggressively cutting back. According to interviews with several former employees, the site initiated a round of layoffs in January, reducing both salaried employees and its network of designers. In February and early March, Modsy continued to cut. Following the latest set of layoffs this week reported on by TechCrunch, the company has now trimmed its network of designers down to under 100, eliminated a layer of management, and made cuts at the executive level.

In an email exchange with Business of Home, CEO and founder Shanna Tellerman said that as part of the efforts to make the company leaner, she and a number of other members of the executive team have taken a 25 percent pay cut.

While such measures are being taken by companies around the globe seeking to weather the economic fallout from the spread of the coronavirus, the reasons behind Modsy’s downsizing are more complicated. In a recent video call that was recorded by an employee and posted on social media, Tellerman can be seen acknowledging that as of yet, “sales have not significantly dropped.”

Nevertheless, Tellerman says that the coming impact of the coronavirus has caused Modsy to radically change its projections for the year ahead. “COVID-19 has already and will continue to have a major impact on our business, just as it’s impacting every other business globally,” she wrote. “We believe that ensuring Modsy survives this pandemic and the upcoming recession is the most important thing we can do as a business for the industry, designers and customers alike.”

However, Tellerman acknowledges that Modsy had already been scaling back prior to the coronavirus’s arrival in the U.S.; the January, February and early March cuts caught many employees off guard. Several described to BOH a culture of cheery optimism, in which the company’s successes were celebrated and sales were flowing in. As a result, the layoffs seemed to arrive out of the blue, and many employees took to the job review site Glassdoor to vent their frustrations.

At the time, the cutbacks were ascribed to a change in corporate strategy, inefficient customer acquisition costs, and the shifting winds of venture capital culture. In a recording of a January video call obtained by BOH, a Modsy supervisor says: “How we grew in the fall is not sustainable. … The climate of startups existing has really shifted over the past couple months. Companies like WeWork that have exponentially grown have not been successful. … We’re moving from a 3X planned growth rate to a 2X planned growth rate. That means we need significantly less designers because we’re going to have significantly less customers than we planned to have.”

“Coming into 2020, market indicators prompted us to scale back our growth plan and reduce costs accordingly,” wrote Tellerman. “This called for some very difficult decisions that included layoffs in Q1 and adjusting compensation plans in Q2. I am deeply sorry to everyone who has been personally impacted by these decisions. We have provided severance to employees laid off and are also offering references and support to designers throughout this transition.”

CUTS TO DESIGN FEES
Over the past five months, Modsy has also slashed the fees it pays designers. According to several former designers for the company, last fall, Modsy was paying $30 for a standard room design and $40 for a premium offering (stylists must complete two designs for each room). The rate was reduced in December to $26 for a standard room, $30 for a premium. In documents obtained by BOH, the company’s current rate represents another round of cuts: Modsy is now paying designers $18.75 to create a standard living room, and $22.50 for a premium level of service—which means that over the course of six months, the company has almost halved what it pays for some design work.

Modsy encourages stylists to complete the two designs for each room in under two hours—90 minutes is a frequently suggested turnaround time. Several former Modsy designers said that while it was possible to complete two designs that quickly, it was difficult to maintain good customer reviews working at that speed. According to these designers, two initial room designs frequently took them from two to four hours, meaning that pay would sometimes fall far below minimum wage.

Isabela Lins, a senior lead who has worked at Modsy for three years, tells BOH that the company’s internal metrics back up the suggested 90-minute turnaround time, and that the cuts to fees reflected improvements to Modsy’s internal tools that would allow designers to complete the work more efficiently.

The change in rates also affects what Modsy will pay for “redesigns”—accommodating the changes that customers make after receiving their initial plan. After the third redesign, the payment to designers is reduced to $1 per change for most rooms. According to several former Modsy designers, customers frequently request five or more redesigns. Lins says that requests for extensive redesigns are rare.

OUTSOURCING
Earlier this year, many Modsy stylists were upset by the revelation that the company had explored outsourcing design work overseas. Piecing together clues from the company’s Slack system and digging around on Twitter, some discovered that Modsy had been testing out a team of stylists based out of the Philippines late last year.

Modsy acknowledged the program in internal meetings with designers, and said that it had been a pilot that had not panned out—and that stylists in the Philippines had not worked on any client projects. The company did continue to explore offshoring, with another program in Bulgaria launched in February that led to the hiring of five stylists, a growth program Modsy says it has since suspended. Two weeks ago, a Bulgarian Modsy employee posted a notice on LinkedIn, advertising openings for designers. The ad included a room design rate of $12, roughly $7 less than what an American stylist would be paid for the same work.

Lins says that currently the Bulgarian design team is paid at the same rate as American designers, that the $12 rate had been floated to test the market in Bulgaria, and that the ad had been left online in error, as the program is now frozen.

In a videoconference with remaining Modsy employees conducted yesterday obtained by BOH, COO Meredith Dunn discussed the origins of the program and explained why the five Bulgarian designers had not been fired in the same round of layoffs that had seen hundreds of U.S.-based designers cut from the ranks: “We do feel like we want to understand if an offshore model could work for us, so that’s why we kept the five people we have, to learn from that in a small way. And we ended any future hiring there.”

By email, Tellerman reiterated that the company is “not actively hiring any designers—U.S.-based or otherwise.”

GOING FORWARD
On the call with employees yesterday, both Dunn and Tellerman expressed regret for the layoffs and acknowledged the pain caused by the cuts. “I realize that this is a really hard time, many of you love Modsy, love your jobs. Some of you are very upset and angry and I get it all and I’m sorry,” said Dunn. “I wish we could recontract a larger group of folks. You guys are very talented.”

Tellerman apologized to the assembled audience, and addressed a rocky path ahead. “There is probably nothing that has been harder than this past week at the company—this is not the event or the year that I had expected,” she said. “There’s nothing that can make you feel worse as a founder than watching what you’ve built have to take so many steps backwards. The main thing I am focused on is not shutting the company down and the hard, hard, hard decisions we had to make over the last week were to take what we have in terms of cash flow and money and extend it to a point that we can weather through what is probably going to be the biggest economic recession of our lifetime.”

Tellerman volunteered to write employees a letter of recommendation, and she and Dunn discussed a program to allow laid-off stylists to continue using the company’s rendering software to build out their portfolios. On the call, the two discuss the challenges facing the company going forward—a difficult path to profitability, the likelihood that Modsy would require fundraising again in the future, the need to cut back on marketing spend in the days ahead.

“As we build Modsy back up, there are going to be lessons learned in that round of scaling,” said Tellerman. “I truly hope and believe that we are going to be growing Modsy again in the future.”

Homepage photo: A Modsy rendering featuring pieces from the company's furniture line