Having gone through several levels of the startup life and several economic swings myself, I can say this isn't mutually exclusive. Letting people go means economic hardship for them, but so does delaying a company's death and folding up the business for a larger number of people many months into the future.

A startup, by definition, is a group of people searching for a viable business model. It does not look like this in that hard moment where everyone looks at you and faults you for failing, but in the end surviving with a third of employees and potentially helping to rebuild the economy two years later is the ethically and economically preferable alternative imho.