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Tech world’s latest viral idea: Mass layoffs

In the pandemic boom, they hoarded talent. Now that strategy is backfiring

When Stripe, a payments startup valued at $74 billion, laid off more than 1,000 employees this month, its co-founders blamed themselves. “We overhired for the world we’re in,” they wrote. “We were much too optimistic.”

After Elon Musk, Twitter’s new owner, slashed the company’s staffing in half last week, Jack Dorsey, a founder and former CEO of the social media service, claimed responsibility. “I grew the company size too quickly,” he wrote on Twitter.

And on Wednesday, when Meta, the parent company of Facebook and Instagram, shed 11,000 people, or about 13 per cent of its workforce, CEO Mark Zuckerberg blamed overzealous expansion. “I made the decision to significantly increase our investments,” he wrote in a letter to employees. “Unfortunately, this did not play out the way I expected.”

The chorus of conceding by tech executives that they hired too many people is ricocheting across Silicon Valley as the industry rushes to make cuts, blaming a worsening economy.

But at least part of the surge in layoffs was self-inflicted. When the companies enjoyed soaring profits and a belief that the pandemic-fuelled boom times would keep going, they aggressively expanded by hoarding the most fought-over and expensive resource in the software business: talent.

Silicon Valley tech companies have long seen hiring as more than just filling openings. The industry’s fierce talent wars showed that companies such as Google and Meta were gaining the best and brightest. Ballooning staffs and a long reign atop lists of the most-desired jobs for college graduates were emblems of growth, deep pockets and prestige. And to employees, the work became something larger — it was an identity.

This mentality became ingrained at the largest tech companies, which offer numerous perks on lavish corporate campuses that rival universities. It was echoed by smaller startups, which dangle a chance at life-changing wealth in the form of stock options.

Now these practices are giving the tech industry indigestion.

“When times are flush, you get excesses, and excesses lead to overhiring and optimism,” said Josh Wolfe, an investor at Lux Capital. “For the past 10 years, the abundance of cash led to an abundance of hiring.”

More than 100,000 tech workers have lost their jobs this year, according to Layoffs.fyi, a site that tracks layoffs. The cuts range from well-known publicly traded companies such as Meta, Salesforce, Booking.com and Lyft to highly valued private startups such as Gopuff delivery service and the Chime and Brex financial platforms.

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Many of the job losses have taken place in tech’s most experimental areas. Astra, a rocket company, cut 16 per cent of its staff this week after tripling its head count last year. In the cryptocurrency industry, which has suffered a meltdown this year, high-value companies including Crypto.com, Blockchain.com, OpenSea and Dapper Labs have cut hundreds of workers in recent months.

Tech leaders were too slow to react to signs of an economic slowdown that emerged in the spring, after many of the companies had already been on hiring sprees for several years, tech analysts said.

Meta, whose valuation soared past $1 trillion, doubled its staff to 87,314 people over the past three years. Robinhood, a stock trading app, expanded its workforce nearly sixfold in 2020 and 2021.

“They’ve charged ahead with these plans that are no longer based on reality,” said Caitlyn Metteer, director of recruiting at Lever, a provider of recruiting software.

For many, it’s 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 behaviours enabled by the likes of Zoom, Peloton, Netflix and Shopify would ebb now say they underestimated the extent.

Many believe this downturn will last longer because of the macroeconomic factors that created it. For the past decade, low interest rates pushed investors into riskier assets that offered higher returns. Those investors valued fast growth over profits and rewarded companies that took big risks.

In recent years, tech companies responded to the flood of cash from investors and a rapidly growing business by pouring money into expansion via sales and marketing, hiring, acquisitions and experimental projects. The excess capital encouraged companies to staff up, adding fuel to the war for talent.

“The pressure is to just spend the money quick enough so you can grow fast enough to justify the kinds of investments VCs want to make,” said Eric Rachlin, an entrepreneur who co-founded Body Labs, an artificial-intelligence software company that Amazon bought.

Expanding head count 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,” Rachlin said.

That led the tech industry to gain a reputation for corporate bloat. Rumours often circulated of highly compensated workers who clocked just a few hours of work a day or juggled multiple remote jobs at once, alongside elaborate office perks such as free laundry, massages and renowned cafeteria chefs. In the spring, Meta scaled back its perks, including laundry service.

In the past, tech workers could quickly change jobs or land on their feet if they were cut because of the plethora of open positions, but “I don’t think we know yet if everyone in this wave of layoffs will be able to do that,” Rachlin said.

Some people see a chance to help those entering a difficult job market for the first time. Stephen Courson recently left a career in sales and strategy at Gartner, a research and consulting firm, and Salesforce to create financial content. He initially planned to focus on time management, but after many of his friends went through painful layoffs he began working on a course that helps people prepare for job interviews. It’s a skill that many of today’s job hunters never had to hone in flush times.

“This isn’t going to get better quickly,” he said.

Amid the drumbeat of layoff announcements, investors see an opportunity. They are quick to point out that well-known successes of the past decade — companies such as Airbnb, Uber, Dropbox — were created in the aftermath 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 into 20 new startups where at least one founder was laid off from a tech company. Within 24 hours, hundreds of people had applied, said Masha Bucher, founder of the firm.

“Some of the people are saying, ‘This is a sign I’ve been waiting for,’” she said. “It really gives people hope.”

In the meantime, there may be more layoff announcements — delivered through the now-standard form of a letter from the CEO posted to a company blog.

These letters have taken on a familiar format. The bosses explain the grim economic outlook, citing 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 offer up support to those affected — severance, visa help, health care, career guidance. They express sadness and thank everyone.

And they reaffirm the company’s mission.

This article originally appeared in The New York Times.