Why are so many tech companies laying people off right now?
In the US, both private and public tech companies cut more than 1,07,000 jobs in 2017, and this January, thousands of workers at Google, Microsoft Amazon, Goldman Sachs, and Salesforce lost their jobs, bringing the total number of large tech corporate layoffs to about 60,000
Several of these layoffs are realistically related to the upcoming capital-raising challenges and possible recession. However, there is another significant reason for it, and it is related to the desire for growth in 2020–2021 and the notion that hiring is a symptom of it. Users, utilization, retention, revenues, and ARR should be the appropriate indications for this, and hiring should be a tool to support these.
The weak market is the clear cause of the layoffs. Nowadays, investors are increasingly cautious and don’t want to fund high-risk projects. Additionally, the number of initial public offerings (IPOs) anticipated in the coming years has decreased substantially, almost returning to the level it was three years earlier.
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If so, private venture-backed businesses will require a longer run rate to be able to go public, which may be accomplished in one of two ways: by increasing revenue or by cutting costs. Since investors are reluctant to make more investments, valuations have decreased, making it more difficult to raise significant sums of money.
However, there is yet another very important cause for the layoffs, and that is because some firms forced it upon themselves or because new investors forced it onto them. Many firms raised large sums of money during the bullish 2020–2021 market at extremely high valuations, which were occasionally exaggerated.
The investors encouraged the startups to flourish by promising them future growth. This includes hiring a lot of people in order to demonstrate growth, support the present valuations, and raise the next round’s valuation even further. Now, growth must be calculated using actual data. The key determinants of it are usage, retention, users, ARR, and revenues.
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It will frequently include employing individuals who will facilitate growth. In essence, it is regarded as an investment in future growth. As a result, many tech companies were keen to hire when expansion was the main priority for two reasons: Spending money to foster growth and fulfilling the goal of recent investors who were just interested in growth.
Nowadays, with lower valuations and a longer wait for IPOs, priorities are shifting, and most companies now place a higher focus on profit, even at the expense of slower growth.
Layoffs follow for two reasons: first, some of the hires were made while businesses were experiencing rapid development, and hiring was the key indicator to convince the Board of Directors or recent investors that they are doing the correct thing. The second justification is the most obvious.
When the expansion was the top priority, we needed a lot of people to work on it, but as soon as profitability became the top objective, many of these positions were no longer required. Unfortunately, the outcome is always the same: layoffs.
I am a law graduate from NLU Lucknow. I have a flair for creative writing and hence in my free time work as a freelance content writer.
