Mat Hagen

Redfin CEO Glenn Kelman

Redfin today said it is cutting 20 percent of its staff as the Seattle online real estate broker prepares for what Chief Executive Glenn Kelman described as a "big dip."

About 20 employees were let go, bringing total staff at the company to about 75 people. Kelman said it was a difficult decision, but the right move given how the economic slow down is impacting the residential real estate market.

"Redfin's whole business will struggle and fight and may yet fail," Kelman wrote in a message to employees. "But the only way it is possible for us to succeed – and, even today, I believe we will – is if we adapt."

 In an interview, Kelman said that the company had been performing well up until about three weeks ago. Last month, he said executives even felt strong enough about the business to raise revenue projections for next year. But once the economic meltdown hit Wall Street, Kelman said "deals started to fall apart."

And while October and November may still prove to be solid months at Redfin, Kelman said beyond that the outlook is dismal. "As the stock market wiped out prospective down-payments, tours and offers dropped 30 percent," said Kelman in his message to employees.

 "Transactions that were done came undone." Employees were notified of the layoffs in a company meeting this morning, with severance packages provided to departing staffers. Those staffers were notified in one-on-one meetings.

Kelman said he thinks Redfin can weather the storm in part because the company has revenue and offers an "essential service" that helps people save money. "A real business used to be unfashionable, but now it's indispensable," he said. Kelman also noted the importance of cutting staff early in an economic slow down, citing his experience at Plumtree Software which underwent a layoff amid the dot com bust before going public in 2002.

Redfin has raised about $21 million from Draper Fisher Jurvetson, Madrona Venture Group and others, including a $12 million round that closed last year. Kelman declined to comment about the company's cash position, but he did say Redfin will continue to operate the discount brokerage in all eight of the markets where it does business.

"Today is a really tough day," he said.

The Redfin layoffs come amid several warnings from prominent venture capital firms -- including Benchmark Capital and Sequoia Capital -- that startup companies must reduce their burn rates in order to survive the economic crisis.