Unfortunately we had to make some tough decisions
If you work in tech, chances are you heard these words before. According to information on trueup, more than half a million people were affected by layoffs in the tech industry alone since the beginning of 2023. This is an average of 1000 people laid off per day. Leaders and CEOs shared very similar messages. Common phrases like “tough decisions”, “bad economy”, “right sizing”, “laser focus”, “you have been affected”, and my personal favorite “I take full responsibility” are now clichés that make us cringe.
It’s Not the First Time
If you’ve been in the industry for a while, you probably know this has happened several times before. The most famous would be 1999 dot com bubble, with a follow up in 2002 during which around 1 million people were laid off from the tech space. After that came another round of layoffs in 2009 with estimates of up to 200,000 individuals affected. Another 100–150k in 2013/2014 shared a similar fate. This brings us to a grand total of just shy of 2 million layoffs over the last 25 years. In between these layoffs were periods of growth, hiring, and optimistic markets.
Clearly there is a pattern; after the 2024 downturn, we can reasonably predict a period of growth in the tech job market with lots of hiring, followed by another period of layoffs somewhere between 2029 and 2034. But why? Is it just the economy going through its normal cycles?
External Factors Play a Role
In his book “The Psychology of Money”, Morgan Housel argues that luck and external factors have a greater effect on a company’s success, than the internal decisions and strategy. He advises recognizing and respecting the influence of external factors when considering investment. During the lay-off periods noted above, many tech companies lost important revenue streams, some eventually went out of business completely. Stephen Elop, the former CEO of Nokia famously said “We didn’t do anything wrong, but somehow, we lost” during Nokia’s acquisition by Microsoft.
Do Leaders of Big Tech Companies Care?
We’ve established that there is a pattern, we’ve also established that often times the pattern is externally influenced. With that said looking at giants like Google and Meta, one has to wonder. If hard times are predictable, why do they always look like they’ve been caught off guard. Why do big tech CEOs have to take “hard decisions” and claim to “take full responsibility”. Each case is different but more likely or not it’s going to be 1 of 4 things
- Underperforming Product: Most tech companies have more than one product. Often times one or more of these products has been struggling. When times are good, they are willing and able to continue supporting the product using revenue from other parts of the business. When the market is down, revenue from even the best products can drop. Revising existing products and deciding to retire some products or downsizing the respective departments is common strategy. In most cases this means layoffs. A good example of this would be Microsoft laying off 1900 employees in it’s gaming divisions
- Lack of Strong Longterm Strategy: CEOs of tech companies are under tremendous pressure constantly. Employees and investors often have conflicting interests. In addition, the same investors who were happy with rapid growth in 2022, shifted their focus to profitability in 2023. This explains why over a period of a few months between 2022 and 2023 many companies went from hiring liberally, to a hiring freeze, followed by multiple rounds of layoffs. Companies went from R&D investment in many experimental products to focusing on core products that bring in revenue today. Simply put, companies are followers of the immediate market mood. Berkshire Hathaway is a good example of a company that has a solid long term strategy. While they do adjust during a recession, their main strategy of value investment, long term ownership, and diversified portfolio stays the same.
- Running on Low Cash Reserves: While this definitely does not apply to Big Tech, many tech startups and medium sized tech companies run on dangerously low cash reservers. After receiving a round of funding, tech companies will go on hiring and burning capital faster than a runaway train. Suddenly realizing that they will soon run out of cash, they scramble for another investment round. For an investor, number of employees is not a good measure of growth. At this phase they aren’t usually looking for profit either. They are looking for revenue growth. It goes without saying that investors will be less likely to put in a new round of funding in a startup when the market looks unstable.
- By Design: Some companies realize very well that the market will change. They know that when the economy is flourishing, money is easy. They hire many teams to work on experimental products hoping one of them will go off. However, these companies are fully aware that they will eventually need to pull the plug on most of these products. I would argue these are bad intentions. They are dishonest with the people they hire regarding the realistic prospects of the product they’ll be building. They hoard employees often luring them with good offers, only to let them go.
Conclusion
Surely a company’s main goal is to turn a profit, or grow so that the investors capital grows with it. A company should never keep redundant roles to protect employees, that would be wasteful and dishonest towards its investors. With that said a company needs to act in best interest of its employees.
Phrases and clichés aren’t effective anymore. Tech workers are looking for companies that are stable and don’t change course every time the wind blows. These companies exist, People Matters provides a list of companies that didn’t have massive layoff rounds in 2023. These companies face the same external factors as the rest, but they went in better prepared, having a long term strategy that can continue to work in a tough market. Some of the companies in the list like Apple actually ended up laying off 600 employees, though the timing and scale of these layoffs still show a solid company strategy.
