“Operate more efficiently”, the argument of startups before layoffs

Like every night for three months, Anneka Patel woke up at 3:00 am to feed her three-month-old daughter Emilia. It was the early morning of November 10 and Anneka, in her role on the Meta communications team, knew that at that very moment thousands of her co-workers were being fired via email. Hers, the one that left her jobless, arrived at 05:35 am.

That’s how they ended two and a half years of career in Metawhich a couple of weeks ago laid off 11,000 workers, 13% of its staff.

Anneka’s story is just one of the thousands that have been published daily on LinkedIn, Twitter or OpenDoor for the past two weeks. All cases are similar: people under 40 years, highly educated, grateful to their teammates. All fired unexpectedly and via email.

In the case of Anneka, it was useless to be recognized by Business Insider as one of the best public relations professionals in the United States.

“Downtown San Francisco has gone from a depression caused by the pandemic to a miserable recessionary aura due to mass layoffs,” describes Zach Coelius, who runs a venture capital firm in that city.

The specter of the recession stretches across the entire bay from San Jose to San Francisco, with Melon Park, home to Meta, as its epicenter. But the impact is felt in other places too, like New York, London and Toronto.

So far in November, startups and big tech companies have cut nearly 40,000 positions of work, to add 128,865 layoffs in all of 2022, according to the records of Layoff.fyi Tracker. Some 48 tech startups have disappeared this year, 15 of them in San Francisco.

Among the companies that are still standing, the most aggressive has been Twitter, where the 3,700 layoffs also communicated via email correspond to half of its workforce. Robinhood was cut by a third, Intel and Snap by 20%. In number of workers, the 10,000 jobs that Amazon will cut are only surpassed by Meta’s 11,000; and Google could add another 10,000 starting next year.

Miscalculation

The need to “operate more efficiently” anticipating a coming recession is the most cited argument in letters from CEOs to affected employees. But among them, Mark Zuckerberg stands out for being one of the few to recognize the strategy error.

“At the start of the Covid-19 pandemic, the world moved rapidly online and the rise of e-commerce led to skyrocketing revenue growth.

Many predicted that this would be a permanent change, continuing even after the pandemic ended. I thought so too, so I made the decision to significantly increase our investments. Unfortunately, it did not turn out as he expected, ”Zuckerberg acknowledged, in his letter on November 9.

“This is a long overdue adjustment, especially among social media companies and all those whose business model is based on online advertising,” explains Laura Petrone, Global Data Thematic Analyst.

The adjustment is also for companies like Stripe, a payment firm for electronic commerce, and whose income depends on the volume of transactions.

“The layoffs are due to the fact that the operating costs grew too fast. We misjudged how much the digital economy was going to continue to grow,” Stripe CEO Patrick Collison acknowledged in the memo reporting the removal of 14% of his staff earlier this month.

The belief that the digital boom caused by the pandemic would continue and the abundance of liquidity, thanks to near-zero rates in the United States and Europe, fueled unprofitable financing rounds and expansion plans.

There’s Bolt. In May, the fintech laid off a third of your staff, four months after reaching a valuation of 11,000 million dollars, after a series E of financing for 355 million. “Just a few weeks ago, the general management told us that everything was going well. They deceived us, ”wrote a fired worker at the fashion forum: Blind.

For investors, such as those pushing Google to downsize, growth isn’t always justified. “I have friends on Twitter who earn more than $300,000 per year and work between 10 and 15 hours a week,” complains a Blind user, where professionals can anonymously exchange messages about their workplaces. A former Twitter employee confirms the version and says he resigned because he was bored. Another claims that there are few in the industry actually working since 2020.

“Coasters” (coasters) is the term used to describe those who don’t make any effort for the salary they receive, even in seven-figure amounts. HBO’s Silicon Valley series revealed this secret to the industry. A culture that high interest rates, and investor demand for returns, as well as an impending recession, have put an end to.

A storm

For Petrone, a Global Data analyst, the economic slowdown it’s just one part of what she considers a trilogy of factors. “Tech companies, especially social networks or those based on consumer data, are facing an identity crisis. They have to rethink their business. On the one hand, you have lower growth (from online activity and advertising), but you also have more regulations and the Apple IOS change is affecting many, including Meta”, she explains.

The last two points refer to the increased regulations on handling personal dataespecially in Europe, where the Digital Services Act limits the use of algorithms and consumer information for targeted advertising.

As a result of this change, Petrone explains, Apple modified its privacy policies last year, allowing users to block access to your personal information and sending data of your online activity. This poses a double threat to companies like Meta, which receive much of their revenue from offering a service of targeted advertising and tracking the effectiveness of those ads.

For some analysts, it is not the recession, but Apple, which is hitting the balance sheets.

Petrone believes that big tech companies have enough technology to cope with changes in the industry, but they must act accordingly. reset your business. For now, everything anticipates that we have not yet seen the end of the storm that is shaking Silicon Valley.