When Stripe, a $74 billion payments company, laid off more than 1,000 employees this month, the co-founders blamed themselves. “We’ve over-rented for the world we’re in,” they wrote. “We were far too optimistic.”
After Twitter’s new owner Elon Musk cut the company’s workforce in half last week, Jack Dorsey, a founder and former chief executive of the social media service, claimed responsibility. “I grew the company size too fast,” he says wrote on Twitter.
And on Wednesday, when Meta, the parent company of Facebook and Instagram, laid off 11,000 people, or about 13 percent of its workforce, Mark Zuckerberg, its CEO, blamed overzealous expansion. “I have made the decision to significantly increase our investments,” he wrote in a letter to employees. “Unfortunately, this didn’t go as I expected.”
The refrain of tech executives admitting they’ve hired too many people has echoed through Silicon Valley as the industry rushes to cut spending and blame a deteriorating economy.
But at least part of the wave of layoffs was self-inflicted. When the companies posted high profits and were confident that the pandemic-driven boom would continue, they expanded aggressively by hoarding the software business’s most contested and expensive resource: talent.
Technology companies in Silicon Valley have long viewed hiring as more than just filling vacancies. The fierce talent wars in the industry showed that companies like Google and Meta were the best and brightest. Balloon flight crews and a long reign atop the lists of the most sought-after jobs for college graduates were emblems of growth, deep pockets and prestige. And for employees, the work became something bigger – it was an identity.
This mindset has been ingrained in the largest tech companies, offering numerous benefits on lavish corporate campuses that rival universities. It was followed by smaller start-ups, dangling a chance at life-changing wealth in the form of stock options.
Now these practices are giving the tech industry indigestion.
“When times are right, you get excesses, and excesses lead to overcrowding and optimism,” said Josh Wolfe, an investor at Lux Capital. “Over the past 10 years, the abundance of cash has led to an abundance of staff.”
According to Layoffs.fyi, a site that tracks layoffs, more than 100,000 tech workers have lost their jobs this year. The cuts range from well-known publicly traded companies such as Meta, Salesforce, Booking.com and Lyft to highly regarded private start-ups such as the Gopuff delivery service and the financial platforms Chime and Brex.
Much of the job loss has occurred in the most experimental areas of technology. Astra, a rocket company, has cut 16 percent of its workforce this week after it tripled its workforce last year. In the cryptocurrency industry, which has collapsed this year, high-value companies including Crypto.com, Blockchain.com, OpenSea and Dapper Labs have laid off hundreds of employees in recent months.
Tech leaders were too slow to respond to signs of an economic slowdown that emerged this spring, after many of the companies had been hiring for several years, tech analysts said.
Meta, whose valuation rose to more than $1 trillion, has doubled its workforce to 87,314 people in the past three years. Robinhood, the stock trading app, has nearly quadrupled its workforce in 2020 and 2021.
“They have continued with these plans that are no longer grounded in reality,” said Caitlyn Metteer, director of recruiting at Lever, a provider of recruiting software.
For many it is a moment of shock. “Are we in a bubble” panics in the tech industry over the past decade have always been short-lived, followed by a rapid return to even frothier good times. Even those who predicted that pandemic behavior was enabled by Zoom, Peloton, Netflix and Shopify would now say they are underestimating its magnitude.
Many believe that this downturn will last longer because of the macroeconomic factors that have caused it. Over the past decade, low interest rates pushed investors toward riskier assets that offered higher returns. Those investors valued rapid growth over profit and rewarded companies that took large risks.
In recent years, technology companies have responded to the flow of money from investors and a high-growth company by pumping money into expansion through sales and marketing, recruiting, acquisitions and experimental projects. The excess capital encouraged companies to hire staff, fueling the war for talent.
“The pressure is to spend the money fast enough so you can grow fast enough to justify the kind of investments VCs want to make,” said Eric Rachlin, an entrepreneur who co-founded Body Labs, an artificial intelligence software company. intelligence that Amazon bought. .
Increasing the number of employees was also a way for managers to advance their careers. “Getting more people on the team is easier than telling everyone to just work super hard,” said Mr Rachlin.
That led to the tech industry gaining a reputation for corporate bloat. There were often rumors of highly paid employees working just a few hours a day or juggling multiple remote jobs at once, in addition to extensive office perks like free laundry, massages and renowned cafeteria chefs. This spring, Meta scaled back its perks, including laundry service.
In the past, tech workers could quickly change jobs or find themselves on their feet if they were cut due to the plethora of job opportunities, but “I don’t think we know if everyone in this wave of layoffs will be able to do that,” said Mr. Rachlin.
Some people see an opportunity to help those entering a difficult job market for the first time. Stephen Courson recently left a career in sales and strategy at Gartner, the research and consulting firm, and Salesforce to create financial content. He initially planned to focus on time management, but after many of his friends had to endure painful layoffs, he started working on a course that helps people prepare for job interviews. It’s a skill that many of today’s job seekers have never had to hone in flush times.
“This isn’t going to get better anytime soon,” he said.
Amid the drumming of layoffs, investors see an opportunity. They are quick to point out that well-known successes of the past decade — companies like Airbnb, Uber, Dropbox — were made in the wake of the Great Recession.
This week, Day One Ventures, a venture capital firm, announced Funded Not Fired, a program that aims to invest $100,000 in 20 new start-ups where at least one founder was fired from a technology company. Within 24 hours, hundreds of people had signed up, said Masha Bucher, founder of the company.
“Some people say, ‘This is a sign I’ve been waiting for,'” she said. “It really gives people hope.”
In the meantime, there may be more layoffs — delivered via the now standard form of a letter from the chief executive posted to a company blog.
These letters have adopted a familiar format. The bosses explain the grim economic outlook, calling inflation, “energy shocks”, interest rates, “one of the most challenging real estate markets in 40 years” or “probable recession”. They take the blame for growing too fast. They provide support to those affected – redundancy, visa assistance, health care, career guidance. They express their sadness and thank everyone.
And they reaffirm the company’s mission.