Hard Things: Cutting Current Costs to Invest in Our Future

Customer photos at the Rackspace Experience Center inside our San Antonio headquarters.

One of my go-to books on leadership is called The Hard Thing About Hard Things. Its author is Ben Horowitz, one of the most respected entrepreneurs and venture capitalists in Silicon Valley. Ben writes that when you have to lay off employees, you should do so decisively and call it what it is. You should also have a clear message about the future for your customers and partners — and especially for the employees who remain.

In that spirit, I’m writing to report that Rackspace today initiated layoffs that will cut our U.S. workforce by about 6 percent. We are proposing somewhat smaller reductions in our offices in other countries, through consultative processes governed by local laws. The U.S. layoffs and proposed international reductions are personally painful, but they are necessary and manageable. We’re confident we can accomplish these reductions without any effect on the expertise and exceptional customer service we provide to our customers. We have targeted these cuts primarily toward our corporate administrative expenses and management layers, while striving to create the least impact to our frontline Fanatical Support and product teams.

That’s the news. Now, I’d like to explain why we’re making these moves, and what our future holds.

Rackspace is the world leader in the managed-cloud industry, where technology and customer needs change rapidly. We regularly find ourselves with more expertise than we need in some areas, and not enough in others. Our industry changes rapidly, and we don’t always have the luxury of making gradual changes to our workforce. Sometimes more decisive action is required to seize the opportunity to invest in areas where our customers want our help. That’s where we find ourselves today.

Our U.S. layoffs are focused mainly in areas where our workforce has grown more rapidly than our revenue. Other parts of our business — such as our Rackspace Managed Security offering, our OpenStack and VMware private clouds, and our managed services for Amazon Web Services and Microsoft Azure — are growing rapidly, at annualized rates in the high double digits.

We will continue to invest and build our capabilities in these fast-growing lines of business. We have big ambitions, because the complexity and speed of change our customers are facing as they move into the multi-cloud world have never been higher. We are the service leader who can offer our customers Fanatical Support and expertise for the world’s leading clouds. We are not backing down, but racing ahead. We expect that over a period of several years, Rackspace will be significantly larger in revenue, profit and headcount.

What gives us confidence in our future? Three things:

  • The huge, fast-growing opportunity we face. More and more companies are asking us to help them tap the power of the cloud without the pain — without the expense and complexity of managing it all themselves. They want to achieve greater agility, better serve their customers on mobile devices and leverage Big Data for insights into their operations and customer behavior. They want to score big savings by moving IT workloads out of their corporate data centers and onto public and private clouds and dedicated servers. They want to use different clouds for different workloads. And they want a single, trusted partner to help them manage it all. Rackspace is well positioned as the only company that offers expertise and exceptional customer service on all of the world’s leading clouds: across AWS, Microsoft, OpenStack, VMware and our own dedicated servers. We serve tens of thousands of customers in 140 countries, including more than half of the giants in the Fortune 100. We will continue to invest in new and better services for them, and for the many others who will become Rackspace customers in the coming years.
  • Our new ownership structure. Three months ago, we went private under the ownership of a group led by Apollo Global Management, a leading private equity investor. Apollo is giving us the flexibility to structure our business for long-term growth, in ways that would be difficult under the 90-day shot clock of the public markets. Apollo shares our determination to make Rackspace bigger and stronger, not smaller, over the next few years.
  • The special workplace culture our Rackers have built over the past 18 years. Today is painful not only for those who are being laid off but also for the friends and colleagues they’re leaving behind. But our core values are intact and our culture brings us strength because we know our mission and purpose. We will treat all of the departing Rackers with dignity, respect and compassion. Each will receive a fair severance package and outplacement services and support. Those services will include an innovative new Community Link program we’ve created in partnership LinkedIn, other tech employers and governments in cities where we do business, and with tech advocacy groups such as Tech Bloc in San Antonio. Our hope is that these partners will help our departing Rackers find new opportunities that will keep them and their valuable skills in the communities where they live.

In the months leading up to these layoffs, Rackers across our business worked persistently and creatively to trim as much spending as they could from areas other than headcount. I’ve been humbled to watch their efforts, and to see the personal warmth and practical help that all our Rackers are extending to our departing colleagues.

We’re going to bring that same spirit to our new investments in growth over the coming year. What we did today was a very hard thing, and we will not let it be in vain.

Taylor Rhodes served as CEO of Rackspace, responsible for all of the company’s operations in the U.S. and abroad, until May 2017. He excelled in a variety of leadership roles in sales, support, and international operations, and was known for achieving high levels of engagement with customers and Rackers alike.


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  2. Sorry to hear about the issues facing the Rackers, and the IT industry in general. Know you’re not alone as Microsoft, IBM, Twitter, Zenefits, Intel, Autodesk, Mozilla, Medium and more are in the same position. Here’s hoping for a brighter future for all in the IT sector.

    Best wishes and good luck,

    The DDWM Team

    • While we still have application level support for Oracle Commerce, SAP Hybris, Adobe Experience Manager and Sitecore, we have discontinued a beta program for Managed Application Services for Magento due to lack of customer demand. We also offer Managed Application Services for custom applications, which provides application level support for any application.

      We will remain focused on providing deep expertise and Fanatical Support for customers who need help hosting their Magento solutions, as this is where we deliver the strongest value to customers. And we will continue to strengthen our collaboration with the Magento community to meet our customers’ evolving needs.

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