Making sense of the senseless layoffs in tech

Photo by Avery Evans on Unsplash

When business realities hit the tech community and faith in the ecosystem erodes, we ought to do some soul searching. In the first half of this year, we saw numerous layoffs and complaints from employees in the tech space. It’s sad, but at the same time, it’s often nothing personal; it’s just the real business world at work.

In a previous piece, I argued that there are no perfect layoffs. Back then, I said that Airbnb was the gold standard when it comes to executing staff cuts. However, while its external communications was applauded, this piece from the New York Times suggests that the company’s kumbaya ideals have come under strain.

According to an ex-Airbnb employee, “there are a lot of people who feel very betrayed” by the layoffs. It’s natural to feel this way.

If you are reading this and got laid off or have executed staff cuts recently, I feel for you. The goal of this piece isn’t to rub salt on the wound. Rather, I believe the tech community should think deeper about why these things have happened and what lessons we can draw from them.

I believe it’s critical that founders or employees go into the tech and startup arena with eyes wide open. To do that, we must dissect the different types of startups in the ecosystem:

Food for thought for founders

Raising money is just one of the vehicles to help you reach your goal. But fundraising comes with a lot of pressure and responsibilities, coupled with losing some control of your company. Ask yourself if this is the life you want because you are going to be spending a lot of time in your company. And remember that life is a lot more than just building startups and creating wealth.

Alternatively, if you want to take your time to build things and still be in control, either bootstrap or raise from like-minded investors who will let you exercise your judgement (i.e., grid C). Your immediate goal should be to reach product-market fit and profitability as soon as possible.

While ambitious founders typically want to reach grid D, getting from C to D will take a long time. It’s actually much faster to get from B to D, but it can be painful when fast-growing companies face market realities. For instance, removing discounts dampens demand and cutting manpower in turn reduces morale. Growing at a breakneck pace often means internal culture and processes are compromised.

Another truth is that few companies get to grid D. Firms in this category are typically some kind of platform that benefit from massive scale – to the detriment of their competitors. The battle at the top is often also a winner-takes-all match that results in monopolies or oligopolies.

Founders therefore need a plan in case they run out of venture capital money and can no longer raise funds before they get there. Do they sell the company? Do they pivot to grid C? If that happens, is the founder still the best person to lead or is it time to bring in someone new?

A prominent global investor once told me that there is no shame in taking time to build a company. He shared that a friend took 20 years to hit US$20 million in annual revenue for his company that was valued at US$200 million. It took a while, and the firm isn’t a “unicorn,” but he is an extremely happy founder.

Food for thought for employees

Still growing at all costs?

The lean and mean era