Tech Layoffs

1. Globally 120,000 jobs have been lost so far. In the post dotcom bubble era, 200,000 jobs were lost between 2001 and 2004. Meta announced close to 15,000 cuts, Amazon 10,000, Apple announced hiring freeze etc. Twitter went from 7500 employees to 2800 in 8 weeks.

2. In the dot com bubble of 2000, there were 1,800 IPOs before 2000 and then only 76 in 2001. By 2002, 100 million individual investors had lost $5 trillion, everyone losing close to $50,000, which was more than average yearly salary then. In 1999, these startups had $21 billion in sales and loss of $6.2 billion. There were winners from the dot com era too, Amazon, Priceline, E-bay, and Salesforce. Amazon share price dropped from $100 to $7 in that period but recovered spectacularly after that.

3.?The NASDAQ index provides some insights. Since 2008, the index declined only in four years vs previous year. In 2008, it declined by 40.5%, in 2011, it declined by 1.8 %, in 2018 it declined by 3.8% and this year it has declined by 29%. NASDAQ grew 112 % in five years before the decline this year.

4. Leo Tolstoy quote is valid “Every unhappy family is unhappy in its own way” Meta market cap fell from one trillion to $291 billion; it had challenges on privacy with iOS, Twitter was guzzling cash, the delivery model started dropping for Amazon after peaking in the pandemic.

5.?It is a case of two years, in the pandemic everything technology and everything based on delivery was on a high, two years later, everything is down. The rapid up-sizing has led to a steep downsizing in 24 months.

6.?There are lessons:

a. Growth over profitability rarely works. Losing money cannot be the sole definition of a startup.

b. Fun times and fun activities are good if you have a sustainable business. Each start up trying to outdo the other on benefits creates an artificial bubble. Nothing comes free, everything adds to cost.

c. The macro-economic slowdown resulted in the digital ad spending; every business that was dependent on ad spending slowed down.

d.?Startups were about innovation in 2000, about changing the world, today it is about business model, unit economics, about scaling up. In 2000 there were 400 million internet users, mostly on the desktop, in 2022, we have 5 billion internet users, mostly on mobile, so the mobile model is the default model.

e. Activist investors have warned tech companies of ‘bloating’ costs, especially people.

f. There is no substitute to proper due diligence.

7. Layoffs make people more risk averse. There is a view that layoffs create a new talent pool of startups, but it is not validated with robust data. Layoffs hurt international talent as their visas are linked to their job.

8.?In 1999, 8% of Americans wanted to build a startup. It is like what is happening in India now, the startup bug bites many a creative mind.

9.?The startups of 2000 were about changing the world with an idea, most of today’s startups are about disrupting existing legacy markets with a lower cost structure and agility.

10. Many technologies that started in 2000 are mainstream today – VoIP commerce, SaaS, Big data etc.

I am sure there is good news and bad news with these layoffs, time will tell.

Shiv