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Boom To Bust: Everybody Misread The Acceleration
Riding on the wave of the massive, unanticipated tech acceleration during the last two years, the tech community went broke on investments – expecting the acceleration to last forever
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By now, Meta’s 11,000 employee-layoff is old news and so is Twitter’s abrupt 50 plus per cent staff cut after Musk’s Twitter takeover. But the woes continue to mount as international tech giant HP also joins the chorus and announces 4,000 job cuts. This has added to major workforce slash updates coming from other major tech players such as Amazon, Roku and Cisco.
Riding on the wave of the massive, unanticipated tech acceleration during the last two years, the tech community went broke on investments – expecting the acceleration to last forever. While most companies did not give a comprehensive explanation on why the mass layoffs were happening, recent statements by Meta CEO Mark Zuckerberg made it clear that the industry (much like himself) had misread the tech acceleration.
“At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected,” Zuckerberg had noted in his statement.
In fact, Meta investors rejoiced and welcomed the move by the company to cut costs and be more conservative in its approach. The result? Meta’s stock price had gained 4 per cent on the day in reaction to the development.
Today, the prices of mega-tech stocks reflect the beating they have taken this year. In the last year, Meta has lost 66 per cent of its share value, while Alphabet and Amazon shares are down 31 per cent and 46 per cent. Even Microsoft’s stock value is down by 24.9 per cent this year.
“Just six months back, everybody was talking about the great boom in the tech industry and everybody stocked up on manpower. Because they view employees and manpower as inventory,” said Shantanu Rooj, founder and CEO, TeamLease Edtech.
Writing Was On The Wall
Much before the larger, well-known companies started announcing layoffs, there was Snap Inc. which had said that it would cut 20 per cent (about 1,300 employees) of its workforce back in August. It had even said that it would shutdown several initiatives, including ending Snapchat original series.
Prior to this, Twitter during its second quarter earnings filing in July 2022 had announced hiring slowdown citing “current macroeconomic environment”. Along similar lines, Google’s CEO Sundar Pichai had written to employees, highlighting the need to focus on productivity and announced slow down of hiring at the company.
During the September Code Conference in Los Angeles Pichai had said, “We want to make sure as a company, when you have fewer resources than before, you are prioritising all the right things to be working on and your employees are really productive, that they can actually, have an impact on the things they’re working on so that’s what we are spending our time on.”
Speaking on microeconomics the Google CEO had admitted that the company had become slower after growing its workforce during the pandemic.
Needless to say, the writing was on the wall. While layoffs have been a shock to the larger audience consuming the news, employees and the senior management of most companies had to be in the know because all indicators pointed towards necessary restructuring.
Speaking on the layoffs amongst the big tech companies, TeamLease HRTech CEO Sumit Sabharwal said, “I don’t think that there will be a prolonged layoff period. But yes, we will see job losses until businesses reduce their workforce sizes to optimum levels.”
He added that the businesses which had over-hired, without any substantial long-term plan on utilisation of the workforce are actually under pressure currently.
According to data from layoffs.fyi, there have been more than 73,000 layoffs in the US tech sector by mid-November. And in anticipation of a plausible recession, more cuts are likely.
Startup Job Cuts
On the Indian front, things look much better as attrition rates have largely been observed to decline amongst the large tech companies. But the startups in the country have been severely hit. As a result, they have cut close to 18,000 employees in 2022 alone to deal with the ‘funding winter’ and the possible recession which might further force their investors to tighten their purses.
Speaking to BW Businessworld earlier in November, Zerodha CEO Nithin Kamath said, “The startup world was a bit excessive over the last five years because everyone was getting funded and it almost made it seem like anyone can build a billion-dollar business – which was not true. We were in a bull market. So, if something happens in the US, I think the startup ecosystem will get affected first.”
Considering that the recession hasn’t made its landfall in the US yet, it is still a waiting game for now. But most startups are already preparing themselves for what’s to come. It is more than likely that more staff cuts are slated as we head into 2023 as startups look to streamline their workforce and double down on productivity and profitability.
“That's what you are seeing already as lot of startups are letting go of people. They are trying to become more efficient and conserve money because they are all factoring in that the next two to three years would be very hard to raise new capital,” Kamath said.
But course correction in tech and startup ecosystem has helped common sense prevail. While growth still stays important for startups, “growth at all costs” as a concept, has exited the minds of founders. “Today, most entrepreneurs are realising that resilience in business is as important as productivity. They have realised that growth is not the only driving factor and profitability is also important,” said TeamLease Edtech Founder and CEO Shantanu Rooj.
Moving forward, it would be interesting to see how the larger companies in India are impacted if recession hits the US. It would potentially impact business but would it trickle down to cause job cuts? It remains to be seen.