Big tech is laying off people in the Bay area, and other places left and right. That’s no news, and it’s been all over the media for the past few weeks and, in some cases, even in late December. Tens of thousands of people have woken up to an early morning meeting with a direct manager or HR executive, giving them a cold and fast delivery of the information that they have been laid off, effective immediately. In many cases, the dreaded call has just been an email, whereas the most unfortunate ones have just woken up to all of their access to internal tools suddenly cut off.
A first glance into the subject reveals no apparent form of performance review for these people, nor any affinity towards one tech stack or the other. We have seen entire departments sent to the chopping block across companies such as Amazon, Google, Meta, Salesforce, Microsoft, and many others (with many more appearing every day). These include all levels of seniority, experience and years of dedication wiped out in a decision that has been taken overnight from the information available so far.
But why? Why the suddenness of it? And most importantly, why now?
Even more importantly, why outing what seems to be very competent people for their jobs?
Obviously, money and the data-backed confirmation that working from home surprisingly works! More importantly, executives know this to be true and can verify this claim with accurate data. Also, traditionally big tech sets the trend for the entire industry.
In the past years, founded tech startups were pushed to hire in-house teams very early in their product journey. Consequently, this led to a high burn rate for cash which led to more financing rounds, ending in further dilution of shares in the hands of the founders (Silicon Valley model).
Do recent events mean that the Silicon Valley model is finally starting to see the end of its glory days for tech startups, paving the way to something else?
Bear with me; we’re going through every bit of that reasoning shortly!
First off, timing! The end of December – the start of January timeframe points to financials. Executives watch revenues decrease and share value decreases, following the same pattern throughout 2022. Shareholders are unhappy and demand immediate action to protect the bottom line. Cutting costs leads to the second part of the problem; 2 years of pandemic restrictions have taught all of us the wonders of working from home. Even after the pandemic, working from home has become the most sought-after condition in the work environment to date. This new work culture led to the (not so sudden) realization that we don’t really need people physically in offices to get jobs done. And positive examples of this are spread all over the world. People thrive working from home, and now everyone knows about it.
So why is this a problem? Well, that’s just it; the workforce is now more global than it’s ever been, with the special mention that the Bay area is probably the most expensive in the world in terms of hiring talent. It seems that teams based in other places of the world are now available to pick up the workflow for a fraction of the cost. To put things in perspective, a senior position with a 300k/ year salary in the Bay area can now be replaced with a highly experienced team of 5-6 people in other parts of the world. Since work from home is now a given, the two options go head to head on the executives’ agenda. It all comes down to cost because efficiency leans towards the bigger team. Do you see where this is going?
It’s doubtful that the laying-off trend will stop as abruptly as it started! More is coming, and next, we’ll see what this does to the startup community. We’re already seeing different shapes emerging regarding selection criteria on what and who gets funded in the startup world. Would it make sense for investors/hedge funds to take it even further and add a different set of cost-efficiency criteria for building tech companies in the mix?
From what we’re seeing so far, the paradigm is slowly shifting. The critical question for tech companies, big or small, is whether they select an outsourcing partner as a cost control method and take on external services for their needs or lean more towards a product partner, where the relational component is much more necessary. The responsibility for the overall success of the projects becomes a shared endeavour between parties.
Working as a fully functional product partner for startup founders has worked very well at Tapptitude for the last nine years, providing them with a complete workflow starting with product definition, strategy, prototyping, designing, developing, iterating and scaling their products. Will this model become the norm in 2023, as opposed to starting teams in-house? We’ll see. For now, 2023 looks like it will be full of surprises.