Why is everyone getting laid off? Can Big Techs recover?
by Anishka Prasad - Head of Strategy & Operations, Future VC
Big tech companies such as Twitter, Meta, Amazon and many others, have recently fired close to 60,000 people in the last quarter. Twitter may have gotten majority of the attention for firing nearly half of its employees after Elon Musk’s takeover. However, it’s staggering to know that Twitter’s layoff only makes up 6% of the big tech layoffs in this period.
Source: layoffs.fyi and https://www.youtube.com/c/TLDRbusiness
According to data aggregator, Layoffs.fyi, 795 tech companies have laid off 121,667 people in 2022, and counting. These are just publicly disclosed figures, and unlikely to capture the extent of other firings taking place before the end of 2022.
There are also companies such as Apple and Google, who haven’t made any cuts yet, but are enforcing major hiring freezes and making more use of its current resources instead of rolling out new hiring plans.
What are the reasons behind these major layoffs given by Big Tech CEOs?
1. Impending Recession
2. Over Hiring
3. End of Covid-19
4. Not downsizing sooner
The less flashy and probably more unbiased perspective?
1. The Economy
2. Major Interest Rate Rises
3. Predicted Change in Consumer Spending
4. Over optimism of life after the pandemic
As banks around the world rise interest rates in attempts to save their economies, signaling to people to spend less and save more. This essentially means that “easy” capital for start-ups is a thing of the past, as start-ups can no longer be certain on generous fundraising rounds from VCs, which in turn fueled the overzealous hiring prior to the pandemic.
With interest rates on the rise affecting the average person with housing and mortgage affordability, some big techs are also facing domino effects of the same, with spending cuts evident in their marketing budgets and visible changes in their advertising strategies.
The impending recession may be the most obvious course of the recent layoffs, but over hiring in past funding rounds is still the number one reason that’s contributed to downsizing of big techs.
Having that said, businesses can feel pressured to have VC money spent quickly to demonstrate growth and scale, and big techs this truth way too well. This mentality has in the past influenced leaders to spend big on payroll and hire rapidly instead of wisely, or when needed. This then becomes a systemic issue even within big tech organisations structurally, as middle management is encouraged to increase number of people hired in a team, as this reflects their own growth KPIs, which aligns with the company’s scaling roadmap.
Over optimism of a complete shift in lifestyle after the pandemic was another factor that had driven hiring strategies for most big techs. While work life attributes such as working remotely / hybrid working have been embraced by most workplaces, people have swung back into their pre-pandemic patterns of socialising and conducting life, which was predicted to be less likely by businesses such as Meta.
Businesses across the board had become overly optimistic that this pandemic led boom was here to stay and over hired people based on this assumption.
Zebras instead of Unicorns?
The silver lining to the doom and gloom though, is that big techs major layoffs will lead to fresh thinking and make room for more innovation. Instead of over funded unicorns getting more funding, investors will be more likely to consider innovators on a tighter budget, delivering impactful results and realistic scaling roadmaps. The downsizing of big techs essentially makes more room for new tech companies to get funding and scale up in due course to become the next generation of hopeful big techs.